Category Archives: Tax Planning
Back In 2008 the Canadian Government made changes to the Federal Bankruptcy and Insolvency Act to make RRSPs are creditor proof, but with a few provisions. It is important to note that the protection from creditors is available only if you are entering formal bankruptcy proceedings. The law does not protect RRSPs outside of a bankruptcy context. If a person is suffering financial difficulties and they do not wish to declare bankruptcy they do not benefit from this law and may have their RRSP assets seized by creditors.
As well, creditors may still seize any funds contributed to the RRSP in the past 12 months preceding the date of bankruptcy. A bankruptcy trustee can also seize an RRSP plan in bankruptcy within 5 years of a transfer to the plan, if the client was insolvent at the time of the transfer. So in other words if you are already behind in your debts, if your liabilities already exceed your assets and if the creditors have already been knocking on your door then you cannot protect your money by simply “shoveling” your assets over into an RRSP plan. This law does truly protect the regular, solvent person who has contributed to an RRSP over the years and now due to unforeseen circumstances suddenly faces bankruptcy. At the end of the day they will have their RRSP accounts intact.
In addition to the federal protection some of the provinces have also enacted legislation in various forms to offer bankruptcy protection for RRSPs.
Finally though, there is one creditor against which there is no protection even if bankruptcy is declared. Canada Revenue Agency is still entitled to seize assets if there are taxes owing.
The Federal Government introduced their 2014 budget this week. It was somewhat a dull budget. No big changes were introduced. There is one major change proposed that affect Estate Planning. Below is also a link to Jamie Golombeck’s summary of the proposed financial changes. It is a quick read and well worth the time.
Elimination of the Graduated Rate Taxation of Trusts and Estates
Trust set up in a Will benefit from the graduated taxation just like a regular tax payer. This is a major estate planning tool that will see some changes with these proposed new measures. Specifically, Budget 2014 proposes to apply flat top-rate taxation to grandfathered inter vivos trusts, trusts created by will and certain estates. Two exceptions to this treatment are proposed.
First, graduated rates will continue to apply for the first 36 months of an estate that arises on and as a consequence of an individual’s death and that is a testamentary trust. For estates which remain in existence beyond 36 months after death, flat top-rate taxation will apply at the end of that 36-month period. That is the big change.
Second, graduated rates will continue to be made available with respect of such trusts having as their beneficiaries individuals who are eligible for the Federal Disability Tax Credit. This is good news for parents with a disabled child.
|With April 30 coming our way soon, now is the time to start thinking about income tax. There is a bit of administrative work required for income tax filing, even before obtaining your T4 from your employer. Some things that I like to get out of the way are:
It is that time of year, when we are bombarded by RRSP ads. We know we need to save, but can we do it? Chatelaine magazine had a very good article on page 56 in the January issue on how to put some extra dough away. Here are a few of the tips which I have paraphrased here. Sounds like I wrote it myself.
1. Pay yourself first: start a systematic investment instead of waiting to have the funds to invest. You won’t even miss the money.
2. Leave the cards at home: It is a lot harder to part from cash than charging on the card.
3. Avoid ATMs and direct debits: take a weekly allowance for play money or other expenses to avoid overspending.
4. Find the best deal for debts: A penny saved is a penny earned. Simply call the credit card company and ask for a lower rate.
5. Stay out of the aisles: Nutritious, fresh and also inexpensive foods are in the perimeter of your local super market.
6. Check the fine print: Buying in bulk is not always cheaper. Compare the unit price before buying.
7. Start a sitting or work exchange: Barters are back! Ask friends to exchange baby sitting time or help with a small job like painting or moving. That will be a great time to also have a party!
Year RRSPs Introduced in Canada: 1957
Prime Minister who introduced RRSPs: Louis St. Laurent
Maximum Annual Contribution in 1957: $2,500
Maximum Annual Contribution in 2013: $23,820
First Year of Canada Old Age Pension: 1927
Maximum Monthly Benefit in 1927: $20
2013 Maximum Old Age Security Benefit: $550.99
% of eligible taxpayers making RRSP contribution in 2011: 25%
% of Disposable Income Saved by Canadians: 4%
Average RRSP contribution in 2013: $3,544
Average Annual Spending on Beer Wine & Liquor: $724
Canadians Unused RRSP Contribution Room: $700 Billion
% of Canadians Relying on Savings and Investments for Retirement: 34%
% of Canadians Relying on Lottery Win for Retirement: 32%
Average Annual Household Spending on Lottery Tickets: $265
Chances of Winning Major Lottery: 1 in 13.9 million
Sources: Statistics Canada; Human Resources Canada; CRA; BOM; Environics