FPSB Retirement & Tax Specialist 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 for a year: 18% of prior-year earned income minus the pension adjustment and PSPA, plus unused room, capped by the annual money-purchase limit.

Pension adjustment

A figure reported on a T4 that reflects the value of pension benefits earned in a year; it reduces the following year's RRSP deduction limit for members of registered pension plans.

RRIF minimum withdrawal

The mandatory annual amount that must be withdrawn from a RRIF, calculated as the start-of-year fair market value multiplied by the prescribed factor for the annuitant's age.

Spousal RRSP attribution

Withdrawals from a spousal RRSP are taxed to the contributing spouse if made in the year of contribution or the two following calendar years, to the extent of those contributions.

TFSA re-contribution rule

A TFSA withdrawal restores contribution room only in the following calendar year; re-contributing in the same year can cause an over-contribution penalty of 1% per month.

CPP early retirement reduction

Starting the CPP retirement pension before age 65 permanently reduces it by 0.6% for each month early, a 36% reduction at age 60.

CPP deferral increase

Delaying the CPP retirement pension past age 65 increases it by 0.7% per month, reaching a 42% increase at age 70.

OAS clawback

A recovery tax on the Old Age Security pension when net income exceeds the threshold; 15% of income above the threshold is repaid, fully offsetting OAS at roughly twice the threshold.

Guaranteed Income Supplement

An income-tested benefit for low-income OAS recipients; it is reduced by income other than OAS, so taxable RRIF withdrawals can lower it.

Locked-in retirement account

A LIRA holds funds transferred from a registered pension plan and is subject to pension legislation withdrawal restrictions, unlike an RRSP.

Defined benefit commuted value

The actuarial present value of a member's future pension, based on interest, mortality and indexing assumptions; it differs from the total contributions made.

RRSP over-contribution cushion

A lifetime $2,000 cushion above the deduction limit is permitted without penalty; excess contributions beyond it attract a 1% per month penalty tax.

Pension income splitting

Up to 50% of eligible pension income, including RRIF income after age 65, may be allocated to a spouse to reduce combined tax.

RRSP maturity age

An RRSP must be matured by the end of the year the annuitant turns 71, by converting to a RRIF, buying an annuity, or withdrawing the funds.

Marginal tax rate

The rate of tax applied to the next dollar of taxable income; it is used to evaluate the tax cost of an additional withdrawal or the benefit of an additional deduction.

Average tax rate

Total tax payable divided by total taxable income; it is always lower than the marginal rate in a progressive system and reflects the overall tax burden.

Capital gains inclusion

Only a portion of a realized capital gain is included in taxable income; the inclusion rate determines the taxable amount, and the remainder is received tax-free.

Superficial loss rule

A capital loss is denied if the same or identical property is acquired within 30 days before or after the sale by the taxpayer, spouse, or a controlled corporation.

Capital loss carryover

Net capital losses may be carried back three years and forward indefinitely, but can only offset taxable capital gains, not employment or other income.

Dividend gross-up and credit

Eligible dividends are grossed up and a federal dividend tax credit is applied, so corporate income distributed as dividends is taxed roughly like income earned directly.

Attribution rules

Income from property transferred to a spouse or minor child is generally taxed back to the transferor; capital gains may also attribute where the transfer is to a spouse.

Principal residence exemption

The gain on a designated principal residence is reduced by the formula (1 + years designated) ÷ years owned, which can eliminate the gain entirely.

RRSP 60-day rule

Contributions made in the first 60 days of a year may be deducted for that year or the preceding year, allowing taxpayers to use up prior-year room.

Automobile standby charge

A taxable benefit for an employer-provided car, based on original cost and months available, plus an operating cost benefit; a reduced rate applies where personal use is mainly commuting.

Prescribed-rate loan

A loan to a spouse at the CRA prescribed rate avoids income attribution if interest is paid by January 30 each year; the rate is fixed when the loan is made.

Donation tax credit

The first $200 of donations receives a credit at the lowest rate; amounts above $200 receive a credit at the highest rate, so batching donations increases the benefit.

Medical expense credit

Expenses must exceed the lesser of a fixed threshold and 3% of net income; expenses can be claimed for any 12-month period ending in the tax year.

Capital gains reserve

When proceeds are received over several years, part of the gain can be deferred; at least 20% is recognized each year, with a five-year maximum.

Instalment payments

Quarterly tax prepayments required when net tax owing exceeds a threshold in the current and either of the two prior years; interest applies to shortfalls.

Basic personal amount

A non-refundable credit that shelters a base amount of income; it is calculated at the lowest rate and reduced for high-income taxpayers under phase-out rules.

Allowable business investment loss

A capital loss on shares or debt of a small business corporation that may be treated as an allowable business investment loss, half deductible against all income.

Deemed disposition at death

Assets are generally treated as disposed at fair market value on death, triggering capital gains unless a rollover to a spouse or qualifying trust applies.