New RIF Minimum Withdrawal Rules

August 17, 2015

If you are withdrawing the minimum from your RIF, you have a few options to consider this year.

Changes to required minimum annual withdrawal amounts as result of regulations introduced in the Federal Budget released April 21, 2015 may provide you with some additional options if you have opted for the “previous” minimum required withdrawal amount.

Specifically, the budget introduced a reduction to the prescribed required minimum annual withdrawal factors for RRIF annuitants 71 to 94 years of age. This reduction will result in decreasing the amount that RRIF annuitants will be required to withdraw as a minimum amount during those age years.  Since this change was introduced well after the start of the year but is effective for 2015, you have a few options for 2015:

  • Minimum Amount – You can choose to take this year’s minimum payment based on the old calculations, in which case you do not need to do anything further.
  • Adjust Payments – You can choose to adjust any minimum payment(s) not yet paid to reflect the new lower calculation. In this case we will require formal updated instructions from you.
  • Re-contribute – If you have already, or by the end of the year will have received the required minimum annual withdrawal amount based upon the old factors, you have the option of re-contributing the excess amount to your RRIF. The deadline to make a re-contribution is March 1st, 2016. You will be issued a T4 for the amount withdrawn and an offsetting contribution slip for the re-contribution for your 2015 tax filing. Please retain this letter as confirmation of the excess amount eligible for re-contribution.

No action is required on your part unless your payment(s) are based upon the minimum required withdrawal and you wish to take advantage of the lower required minimum withdrawal for 2015, or wish to re-contribute the excess withdrawals for 2015.

If you do want to decrease your minimum RIF withdrawal amount and/or re-contribute the allowable amount from what you have already withdrawn, please give us a call.

Federal Budget Highlights

May 19, 2015

As you know, Finance Minister Joe Oliver delivered his Federal budget on April 21 in Ottawa.

While you’ve probably seen plenty of media coverage, I thought you would appreciate an overview of how some of the budget items that relate to investments and taxes.

This year, the government reported balanced books and wants that to continue. So it’s introduced balanced budget legislation requiring Ottawa to stay in the black unless there’s a recession, war, or natural disaster. One way the government will do that is by closing certain tax loopholes.

Still, this year’s budget contains some generous changes.

Foremost is an increase in the TFSA contribution limit from the current $5,500 to $10,000. The proposed change is retroactive to January 1, 2015, and clients over age 18 who have not contributed since the TFSA’s creation in 2009 now have $41,000 in contribution room.

ACTION – If you have the cash you can maximize your 2015 TFSA contribution now to $10,000.

For some clients, especially those in lower tax brackets, this change means TFSAs can become more advantageous than RRSPs. Many clients nearing retirement also will benefit from the limit increase, because they can take advantage of early RRIF withdrawal benefits and then move the money into a TFSA and keep it sheltered.

Or, if you’ve already contributed the old $36,500 maximum, you could now move some non-registered investments into TFSAs. In cases where large capital gains might apply, this might not be a strategy worth pursuing. But we can talk about whether this strategy is a good idea when next we meet.

TFSA limit increases also have been decoupled from the inflation rate, meaning future increases aren’t automatic and instead will have to be legislated by the government.

Meanwhile, proposed changes to RRIF rules will mean seniors won’t have to withdraw as much money from their retirement savings. The budget cuts the required withdrawal amount at age 71 to 5.28% from the current 7.38%. Required withdrawal rates still increase every year, but instead of topping out at 20% at age 94, the cap isn’t reached until age 95.

Another budget item aimed at seniors and others who qualify for the Disability Tax Credit is a new Home Accessibility Tax Credit. This 15% non-refundable tax credit applies to up to $10,000 of renovations, such as wheelchair ramps, walk-in bathtubs and wheel-in showers.

And, small businesses will get to keep more of their earnings. This year’s budget proposes to reduce the small business tax rate to 9% by 2019 – or 2% over the next four years. The reduction generally applies to the first $500,000 of business income.

Small business owners also will get a tax break if they sell their companies and donate the proceeds of the private company shares to charity within 30 days. To be eligible, a sale must take place in 2017 or later.

Lastly, rules for reporting specified foreign income will be changing, again. Ottawa’s announced a revamp of Form T1135 to streamline the process for people with foreign assets between $100,000 and $250,000 in time for the 2015 tax year. But those reporting $250,000 or more will need to follow the existing requirements.

I hope you find these highlights useful. If you’d like to discuss these and other Federal budget initiatives and how they affect your financial plan, please don’t hesitate to contact me.