Income Taxation and Tax Planning

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Income Taxation and Tax Planning

• RRIFs
• Business 4099

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K.Hartviksen
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Registered Retirement Income Funds (RRIFs)

• A RRIF is a fund registered with Revenue Canada
  established by an individual for the purpose of
  receiving a certain form of retirement income.
• Normally a plan holder purchases an RRIF through
  the transfer of funds from an RRSP, although a
  RRIF may be purchased with funds from another
  RRIF or pension funds which are not locked-in.
• While the plan holder is not allowed to invest
  more, the funds that remain invested continue to
  accumulated free of tax. An RRIF provides a way
  of extending some of the tax deferral benefits
  offered by an RRSP.

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K.Hartviksen
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Where can you purchase a RRIF?

• An individual may purchase a managed RRIF from a
  carrier such as a life insurance company, trust
  company or bank, or may set up a self-directed
  RRIF.
• The investment rules that apply to RRSPs also
  apply to RRIFs.

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RRIF Rules

• There is a minimum annual withdrawal (except for
  the year an RRIF is established) which is taxable
  as received.
• There is no maximum withdrawal.
• For RRIFs established before 1993 and for RRIF
  holders age 78 or less, the minimum amount that
  must be withdrawn each year is equal to the
  market value of the RRIFs assets at the beginning
  of a calendar year divided by the number of years
  left until the plan holder (or spouse, if
  younger) reaches age 90.
• For RRIFs established after 1992 or for RRIF
  holders above age 78, the minimum amount that
  must be withdrawn is a fraction that increases
  gradually each year, levelling off at 20 of the
  value of the RRIFs assets once the plan holder
  (or spouse, if younger) reaches age 94.

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Advantages of RRIFs

• Except for minimum prescribed payouts, RRIFs
  offer considerable flexibility.
• The plan holder can vary the income flow and the
  income flow schedule. Any amount above the
  minimum payout can be withdrawn. This allows
  varying cash flows including lump sum withdrawals
  for major vacations or purchases such as a car.
• There is no limit to the number of RRIFs that can
  be purchased by a taxpayer.
• The RRIF is transferred directly to a surviving
  spouse as successor annuitant, in which case the
  RRIF payments are taxable in the spouses hands
  for the years in which they are received.
• RRSPs can be matured at different times and
  transfers can be made to one or more RRIFs each
  time.

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Conclusion

• RRIFs provide a way to shelter income on funds
  until they are withdrawn from the fund.
• Compared to an annuity, an RRIF provides the plan
  holder control over his/her capital and some
  flexibility of fund withdrawal.

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K.Hartviksen