The Governments 2007 Budget, Bill C-52 Receives Royal Assent - RRSPs and RRIFs Affected

Bill C-52, An Act to Implement Certain Provisions of the Budget Tabled in Parliament received Royal Assent June 22, 2007 and is now in force. The following information highlights the changes contained in Bill C-52 that affect RRSPs and RRIFs. The Information Circular #10/07 dated June 28, 2007, was provided by Concentra Financial.

RRSP Plan Maturity

The RRSP plan maturity age has increased from age 69 to age 71.

RRSP annuitants age 69 in 2007, are not required to convert the RRSP contract to a retirement income option until 2009, the year the annuitant attains age 71.

Taxpayers with RRSP contribution room may continue to make RRSP contributions up to December 31 of the year the taxpayer attains age 71.

What consideration is being given to RRIF Annuitants who attained age 69 in 2005 (age 70 in 2006/age 71 in 2007)?

Taxpayers who attained age 71 in 2007 will have the option to: a) continue receiving RRIF payments as selected, or b) stop the RRIF payments for the balance of the current year and recommence payments in 2008.

What consideration is being given to RRIF Annuitants who attained age 69 in 2006 (age 70 in 2007/age 71 in 2008)?

Taxpayers who attained age 69 in 2006 may elect to: a) continue to receive RRIF payments as selected, or b) stop the RRIF payments for the balance of the current year, and:

i) transfer the RRIF to an RRSP and then convert to RRIF by end of 2008 or

ii) leave funds in RRIF and recommence payments at age 72 in 2009.

What consideration is being given to RRIF Annuitants who attained age 69 in 2007 (age 70 in 2008/age 71 in 2009)?

Taxpayers who attained age 69 in 2007 may elect to: a) continue to receive RRIF payments as selected, or b) stop the RRIF-payments, and:

i) transfer the RRIF to an RRSP and then convert to RRIF by end of 2009, or

ii) leave funds in RRIF and re­ commence payments at age 72 in 2010.

Re-contribution of minimum payments in 2007 for RRIF annuitants age 70 or 71 years of age in 2007

In addition to the above considerations, taxpayers age 70 or 71 in 2007 are permitted to re-contribute to their RRIF or RRSP an amount, up to the annual minimum amount for 2007, and to claim an offsetting deduction.

Re-contribution of annual minimum payments in 2008 will be permitted for RRIF annuitants who attain age 71 in 2008.

The government has not released procedures on the handling of recontribution of RRIF payments to a RRIF contract. Where a RRIF annuitant wishes to re-contribute RRIF payments back to the RRIF contract with a Concentra Financial (your institution may differ), we will provide the RRIF annuitant with a receipt letter containing the following statement:

This letter shall serve as acknowledgment

that the sum of $_____ was re-contributed

to your RRIF contract #XXXX under

subparagraph 60(l)(v) of the Income Tax

Act (Canada) on _______________ (date).

Please attach a copy of this letter to your

income tax return to obtain your

deduction.

Where a RRIF annuitant is under the age of 71 and chooses to re-contribute the minimum RRIF payments to an RRSP, the annuitant will be required to open an RRSP and receive the normal official receipt.

Will a LIF/LRIF/MB RRIF/SK RRIF annuitant be permitted to recontribute the minimum payment amount?

When a LIF/LRIF/MB RRIF/SK RRIF annuitant receives a payment from the contract, those funds are no longer governed under pension legislation. The annuitant, that meets the age requirements set-out above, may choose to re-contribute the minimum payment amount in 2007/2008; however, those funds must be re-contributed to a nonlocked-in RRIF or RRSP.

Pension legislation does not permit the annuitant to make contributions to the LIF/LRIF/MB RRIF/SK RRIF contract.

Will the increase in age maturity to age 71 impact the withholding tax requirements for RRIF payments?

No, there is no change. RRIF payments, for any age, will continue to be subject to withholding tax on the amount in excess of the annual minimum amount that would otherwise have been determined for that year.

Will RRIF annuitants age 69 to 71 in 2007 be informed of these changes?

Concentra Financial (your institution may differ) will send a notice to all locked-in and non-locked-in RRIF annuitants, age 69 to 71 informing them of these changes. We anticipate that notice will be released mid- July.

Pension Income Splitting

Pension income splitting is now available for 2007 and subsequent taxation years, provided

Pensioner is a resident of Canada

Pensioner is receiving eligible pension income:

pension plan annuity payments; RRIF payments (including LIF/LRIF/MB RRIF/SK RRIF payments); annuity purchased with RRSP or DPSP funds; or interest earned on term-certain (general) annuities

Pensioner and spouse make a joint election on a prescribed form. We anticipate the form will be available in the 2007 Tax Package.

One joint election is made per taxation year

Pensioner and spouse file prescribed form with his/her tax return on or before the filing due date for the taxation year for which the election is made.

e.g. Joint election made in 2007 for 2007 eligible pension income; prescribed form will be filed with the 2007 tax return on or before April 30, 2008.

A maximum of 50% of the eligible pension income can be split.

Pension income splitting will apply for the 2007 and subsequent taxation years.

Pensioner and spouse who jointly elected to split the eligible pension income will both be:

• eligible for the pension income tax credit
• jointly and severally liable for the tax payable by the spouse on the portion transferred to the spouse.