Definitions for RRSPs
An advantage is any benefit, loan or debt that depends on the existence of the RRSP or RRIF, other than:
- RRSP or RRIF distributions;
- administrative or investment services in connection with the RRSP or RRIF;
- loans on arm’s length terms;
- payments or allocations (such as bonus interest) to the RRSP or RRIF by the issuer or carrier; or
- a benefit provided under an incentive program that is offered to a broad class of persons in a normal commercial or investment context and not established mainly for tax purposes.
An advantage includes any benefit that is an increase in the total fair market value (FMV) of the property held in connection with the RRSP or RRIF that can reasonably be considered attributable, directly or indirectly, to one of the following:
- a transaction or event (or a series of transactions or events) that would not have occurred in a normal commercial or investment context where parties deal with each other at arm's length and act prudently, knowledgeably, and willingly with each other, and one of the main purposes of which is to enable the annuitant (or another person or partnership) to benefit from the tax-exempt status of the RRSP or RRIF;
- a payment received in substitution for either:
- a payment for services provided by the annuitant (or another person not at arm's length with the annuitant); or
- a payment of a return on investment or proceeds of dispositions for property held outside of the RRSP or RRIF by the annuitant or a person not dealing at arm's length with the annuitant;
- a swap transaction; or
- specified non-qualified investment income that has not been paid from the RRSP or RRIF within 90 days of the annuitant receiving a notice from CRA requiring them to remove the amount from the RRSP or RRIF.
An advantage also includes an RRSP strip or any benefit that is income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to one of the following:
- a prohibited investment in respect of the RRSP or RRIF or any other RRSP or RRIF of the annuitant;
- an amount received by the annuitant of the RRSP or RRIF (or by a person not dealing at arm's length with the annuitant) if it is reasonable to consider that the amount was paid in relation to, or would not have been paid but for, property held in connection with the RRSP or RRIF, and the amount was paid in substitution for either a payment:
- for services provided by the annuitant (or another person not at arm's length with the annuitant); or
- of a return on investment or proceeds of disposition.
If the advantage is extended by the issuer/carrier of an RRSP or a RRIF, or a person with whom the issuer/carrier is not dealing at arm’s length, the issuer/carrier, and not the annuitant of the RRSP or RRIF, is liable to pay the tax resulting from the advantage.
Generally, an annuitant of an RRSP or a RRIF is the person for whom the plan or fund provides a retirement income. In certain circumstances, the surviving spouse or common-law partner may qualify as the annuitant when, because of the death, he or she becomes entitled to receive benefits out of the plan or fund.
- Common-law partner
A person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:
- has been living with you in a conjugal relationship, and this current relationship has lasted for at least 12 continuous months (see note below);
- is the parent of your child by birth or adoption; or
- has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.
In this definition, “12 continuous months” includes any period that you were separated for less than 90 days because of a breakdown in the relationship.
- Commutation payment
A fixed or single lump-sum payment from your RRSP annuity that is equal to the current value of all or part of your future annuity payments from the plan.
- Deferred profit sharing plan (DPSP)
An employer-sponsored plan we register, in which the employer shares the profits of a business with all the employees or a designated group of employees.
- Defined benefit provision
The terms of a registered pension plan (RPP) that promise a certain level of pension on retirement, based on the employee's earnings and years of service.
- Earned income
We calculate your earned income by adding your employment earnings, self-employment earnings, and certain other types of income, then subtracting specific employment expenses and business or rental losses.
Qualifying performance income (generally endorsement income, prize money or income from public appearances received by an amateur athlete) contributed to an amateur athlete trust (AAT) after 2013, qualifies as earned income in determining the RRSP deduction contribution limit of the trust’s beneficiary.
For the purpose of RDSPs, a child or grandchild of a deceased annuitant under an RRSP, a RRIF or of a deceased member of an RPP, an SPP or a PRPP, who was financially dependant on the deceased for support, at the time of the deceased's death, by a person of physical or mental infirmity.
- Exempt period
The period from the date of death to December 31 of the year after the year of death.
- Fair market value (FMV)
Usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other. For information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuation.
- Financially dependent
If you are child or grandchild of a deceased annuitant, you are generally considered financially dependent on that annuitant at the time of death if, before that person's death, you ordinarily resided with and depended on the annuitant, and you meet one of the following conditions:
- your net income for the previous year (shown on line 236 of your income tax and benefit return) was less than the basic personal amount (line 300 from Schedule 1) for that previous year; or
- you are infirm and your net income for the previous year was equal to or less than the basic personal amount plus the disability amount (line 316 from schedule 1) for that previous year.
If, before the annuitant’s death, you are away from home because you were attending school, we still consider you to have resided with the annuitant.
If your net income was more than the amounts described above, we will not consider you to be financially dependent on the annuitant at the time of death, unless you can establish that you were. To do so, you or the legal representative should submit a request in writing to your tax services office explaining why we should consider you to be financially dependent on the annuitant at the time of death.
- Foreign plan
A plan or arrangement maintained primarily to benefit non-residents for services they perform outside Canada.
- Matured RRSP
An RRSP that is paying you retirement income.
- Money purchase provision
The terms of a registered pension plan (RPP) under which the amount of your pension depends on how much you and your employer contribute to the RPP for you.
- Non-qualified investment
Any property that is not a qualified investment for the RRSP or RRIF trust.
- Pooled registered pension plan (PRPP)
A retirement savings plan to which you and/or your participating employer can contribute. Any income earned in the PRPP is usually exempt from tax as long as it remains in the plan.
- Prohibited investment
This is property to which the RRSP or RRIF annuitant is closely connected, it includes:
- a debt of the annuitant;
- a debt or share of, or an interest in, a corporation, trust or partnership in which the annuitant has a significant interest (generally a 10% or greater interest, taking into account non-arm's length holdings); and
- a debt or share of, or an interest in, a corporation, trust or partnership with which the annuitant, does not deal at arm's length.
A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation or by an approved private insurer. It also does not include certain investment funds and certain widely held investments which reflect a low risk of self-dealing.
- Qualified investment
An investment in properties, including money, guaranteed investment certificates, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange.
- Qualifying group plan amounts
Often referred to as "mandatory group plan amounts." They are contribution amounts that you are required to make to a PRPP or a "qualifying arrangement." An arrangement is a qualifying arrangement if:
- it is for two or more individuals;
- the contributions are amounts you are entitled to for services you provided; and
- the contributions are remitted to the RRSP by the person who pays you, or by an agent for that person.
Qualifying group plan amounts do not include amounts that you could have prevented from being paid after beginning to participate in the arrangement and within the 12 months before the amount was paid.
- Qualifying retirement plan
For purposes of the Canada-U.S. tax convention, a United States qualifying retirement plan is a plan that is generally exempt from income tax in the U.S. and is operated primarily to provide pension or retirement benefits. Common qualifying U.S. retirement plans include 401(k) arrangements. For a complete list of qualifying U.S. retirement plans, go to Protocol Amending the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital and see paragraph 10.
- Refund of premiums
An amount that is paid or considered to have been paid from a deceased annuitant's RRSP to a qualified beneficiary.
Registered disability savings plan (RDSP)
A trust arrangement between an individual (the holder) and a trust company in Canada (the issuer) that provides for the long-term financial security of a beneficiary who has a prolonged and severe mental or physical impairment.
- Registered education savings plan (RESP)
A registered contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber generally makes contributions to the RESP, which earns income, paid in the form of educational assistance payments to one or more identified beneficiaries.
- Registered pension plan (RPP)
A pension plan that we have registered. Funds are contributed by an employer, or by an employer and employees, to provide a pension to employees when they retire.
- Registered retirement income fund (RRIF)
A fund you establish with a carrier and that we register. You transfer property to the carrier from an RRSP, a PRPP, an RPP, an SPP, or from another RRIF, and the carrier makes payments to you.
- Registered retirement savings plan (RRSP)
A retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.
- Related person with a disability
Is a person with a disability who is related to you by blood, marriage, common-law partnership, or adoption. A related person with a disability does not have to reside with you in the same home.
- Retiring allowance
Also called severance pay, this is an amount you receive on or after retirement from an office or employment in recognition of long service. It includes payment for unused sick leave and amounts you receive for loss of office or employment, whether as a payment of damages or a payment under an order or judgment of a tribunal.
- RRSP contribution
The amount you pay, in cash or in kind, at the time you contribute to an RRSP. In kind contributions consist of the FMV market value of the property.
- RRSP deduction
The amount you indicate on line 208 when you file your income tax and benefit return. Your RRSP deduction claim is limited by the amount of RRSP, PRPP or SPP contributions previously made and your RRSP deduction limit.
- RRSP deduction limit
The maximum amount you can deduct from contributions you made to your RRSPs or to your spouse's or common-law partner's RRSP for a year (excluding transfers to your RRSPs of certain types of qualifying income). The calculation is based, in part, on your earned income in the previous year. Pension adjustments (PAs), past service pension adjustments (PSPAs), pension adjustment reversals (PARs), and your unused RRSP deduction room at the end of the previous year are also used to calculate the limit.
- RRSP limit
The maximum amount of new RRSP deduction room that you can create for a year and is one or the amounts used to determine your RRSP deduction limit for that year.
- RRSP excess contributions
Generally, this is the amount of your RRSP, PRPP, and SPP contributions that is more than your RRSP deduction limit for the year plus $2,000. If you have RRSP excess contributions, you may have to pay a tax of 1% per month on those contributions.
- RRSP Strip
The amount of a reduction in the FMV of property held in connection with the RRSP or RRIF, if the value is reduced as part of a transaction, or event, or a series of transactions, or events for which one of the main purposes is to enable the annuitant, or a person who does not deal at arm’s length with the annuitant, to obtain a benefit in respect of property held in connection with the RRSP or RRIF, or to obtain a benefit as a result of the reduction but does not include an amount that is:
- included in the income of the annuitant or his or her spouse or common-law partner;
- withdrawn under the Home Buyers' Plan or the Lifelong Learning Plan; or
- a permitted transfer of funds from one plan to another.
- Specified non-qualified investment income
Income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to an amount that is taxable for any RRSP or RRIF of the annuitant (for example, subsequent generation income earned on non-qualified investment income or on income from a business carried on by an RRSP or RRIF).
- Specified pension plan (SPP)
A pension plan or similar arrangement that has been prescribed under the Income Tax Regulation as s "specified pension plan" for purposes of the Income Tax Act (currently the Saskatchewan Pension Plan is the only arrangement prescribed to be a specified pension plan). Many of the rules related to RRSPs also apply to SPPs.
Specified retirement arrangement
A pension plan that we do not register for income tax purposes and is either not funded or only partly funded.
- Spousal or common-law partner RRSP
An RRSP that you establish to pay yourself income at maturity that you or your spouse or common-law partner contributes to. Also, an RRSP that received amounts or transfers from any of your other spousal or common-law partner RRSPs or from your spousal or common-law partner RRIF.
A person to whom you are legally married.
- Swap transaction
This is any transfer of property between the RRSP or RRIF and the annuitant (or a person not at arm's length with the annuitant) occurring after June 2011, subject to certain exceptions.
The following are not considered to be "swap transactions" :
Contributions, distributions, and transfers between the RRSP or RRIF and another RRSP or RRIF of the same annuitant; or
Transaction related to insured mortgage loans.
An exception is also provided to allow individuals to "swap-out" a non-qualified or prohibited investment provided that the conditions for a refund of the 50% tax on such investments are met. To qualify under this exception, the individual must be entitled to a refund of the tax on disposition of the investment (generally inadvertent cases that are promptly resolved). In addition, we will extend this exception, on an administrative basis, to cover swaps of non-qualified investments that were subject to the pre-March 23, 2011 rules, provided that the conditions applicable to a refund are met.
Swap transactions that are undertaken to remove an investment from an RRSP or a RRIF that would otherwise result in tax under Part XI.01 if left in the plan are permitted to continue to occur until the end of 2021.
Transitional prohibited investment benefit
This expression is relevant only if an individual held one or more prohibited investments in their RRSP or RRIF on March 23, 2011, and continues to hold the investment in their RRSP or RRIF in the year. An individual's transitional prohibited investment benefit for a tax year is the total of any income earned (excluding dividend gross-up) and capital gains realized in he tax year on these investments, less any capital losses realized on these investments in the year. For this purpose, the amount of a capital gain realized is the positive difference between the FMV of the property when it is disposed of by the RRSP or RRIF, or when it ceases to be a prohibited investment (less reasonable costs of disposition, if any) and the FMV of the property on March 22, 2011. The amount of a capital loss is the negative difference.
- Unmatured RRSP
Generally, an RRSP that has not yet started to pay you retirement income.
- Unused RRSP, PRPP and SPP contributions
The amount of your RRSP, PRPP and SPP contributions that you could not deduct or have chosen not to deduct, and that you did not designate as an HBP or LLP repayment for any year. Use Schedule 7, RRSP and PRPP Unused Contributions, Transfers, and HBP or LLP Activities, to keep track of your RRSP, PRPP and SPP contributions. This amount is carried forward to the following year and you can use it as a deduction up to your RRSP deduction limit for that year.
- Unused RRSP deduction room at the end of the year
Generally, your RRSP deduction limit for the year minus the amount you deducted for RRSP, PRPP and SPP contributions for that year.
For 2009 and later years, this amount is reduced by contributions you deduct for a year for amounts you contributed in the year to a qualifying retirement plan in the United States for services you rendered as an employee in the United States in the year.
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