CIFP RRC Exam flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

RRSP Deduction Limit

The maximum RRSP contribution deductible in a year: 18% of prior-year earned income, capped at the annual money purchase limit, less the pension adjustment and any PSPA, plus unused room carried forward.

Pension Adjustment

A value reported on T4/T4A reflecting benefits accrued in a registered pension plan or DPSP; it reduces the RRSP deduction room available to the individual for the following year.

RRIF Minimum Withdrawal

The required annual payment from a RRIF, calculated as the prior December 31 balance divided by the prescribed factor for the annuitant's age, with fixed percentages after age 71.

CPP Early Retirement Reduction

Taking the CPP retirement pension before age 65 permanently reduces the monthly amount by 0.6% for each month early, up to a maximum reduction of 36% at age 60.

CPP Deferral Increase

Deferring the CPP retirement pension past age 65 increases the monthly amount by 0.7% per month, up to age 70, for a maximum increase of 42%.

OAS Clawback

The recovery tax on Old Age Security when net income exceeds the annual threshold; it equals 15% of excess income and is repaid through the tax return.

TFSA Contribution Room

Annual TFSA room is $7,000 for 2024 and 2025, accumulates from age 18, carries forward unused, and is restored the year after a withdrawal.

Defined Benefit PA Formula

Pension adjustment for a defined benefit plan equals 9 times the annual benefit entitlement minus $600, reflecting the value of pension accrual for RRSP room purposes.

Net Worth Calculation

Net worth equals total assets minus total liabilities at a point in time; it differs from cash flow, which measures inflows and outflows over a period.

Emergency Fund Guideline

A reserve of three to six months of essential living expenses held in liquid, low-risk accounts such as high-interest savings accounts or money market funds.

Rule of 72

An approximation of doubling time: divide 72 by the annual percentage rate of return to estimate the number of years required for an investment to double in value.

Real Rate of Return

The return adjusted for inflation, approximated as nominal rate minus inflation rate, or exactly as (1 + nominal) divided by (1 + inflation) minus 1.

Future Value of Lump Sum

The value of a single present amount compounded forward: FV equals PV multiplied by (1 + r) raised to the power n, where r is the rate and n the periods.

Sharpe Ratio

A risk-adjusted performance measure equal to portfolio return minus the risk-free rate, divided by the portfolio's standard deviation; higher values indicate better risk-adjusted return.

Beta

A measure of systematic risk showing how a security or portfolio moves relative to the market; a beta of 1 means it moves in line with the market.

Investment Policy Statement

A document stating investment objectives (return and risk) and constraints (liquidity, time horizon, tax, legal, unique circumstances) to guide asset allocation and portfolio management.

Marginal Tax Rate

The rate applied to the next dollar of taxable income; it differs from the average tax rate, which equals total tax divided by total income.

Capital Gains Inclusion Rate

The portion of a capital gain included in taxable income; for individuals, 50% is taxable, and capital losses may offset only capital gains, with carryback and carryforward rules.

Principal Residence Exemption

An exemption allowing tax-free disposition of a principal residence; the gain is reduced by (1 + years designated) divided by years owned, with one property per family unit.

Eligible Dividend Tax Credit

Eligible dividends are grossed up by 38% and receive a federal dividend tax credit of 15.0198%, plus a provincial credit, to reduce double taxation of corporate income.

Pension Income Tax Credit

A non-refundable federal credit on up to $2,000 of qualifying pension income, such as RRIF income or registered pension income, available to individuals age 65 or older.

Pension Income Splitting

A tax election allowing up to 50% of eligible pension income to be reported by a spouse or common-law partner, reducing combined tax when marginal rates differ.

Capital Cost Allowance

A tax depreciation deduction claimed on business assets under prescribed classes; recapture arises when proceeds exceed undepreciated capital cost, and a terminal loss when a class empties.

RRSP Withholding Tax

Withdrawals from an RRSP are subject to withholding tax at source, ranging from 10% to 30% depending on the amount, and are fully included in taxable income.

Life Insurance Death Benefit

The death benefit paid to a named beneficiary is generally received tax-free; if paid to the estate, it may be subject to probate and creditor claims.

Term Insurance

Pure protection for a specified period with no cash value; convertible term permits conversion to permanent coverage without new evidence of insurability.

Spousal Rollover

A tax-deferred transfer of registered plans and certain capital property to a spouse or common-law partner at death or during life, deferring tax until the survivor disposes.

Probate Fees

Estate administration tax based on the value of probate assets; assets passing by beneficiary designation, such as life insurance or RRSPs, generally bypass probate.

Intestacy

The legal state of dying without a valid will; provincial intestacy rules then determine how the estate is distributed, often not matching the deceased's wishes.

Estate Freeze

A planning technique that fixes the value of an estate at a point in time and shifts future growth to beneficiaries through a trust or corporation, reducing future estate tax.

Capital Retention vs Liquidation

Insurance needs approaches: capital retention preserves capital and pays income from it, while capital liquidation uses up capital to meet income needs over a period.

Beneficiary Designation

A naming of who receives plan or policy proceeds, such as life insurance or RRSPs; a named beneficiary generally bypasses the estate and probate.