Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Several questions, many of which are administrative in nature, have been posed to the CRA concerning the 2015 Federal Budget Measures reducing the RRIF minimum amount for the 2015 and subsequent tax years
Position: See responses provided in body of letter.
Reasons: See below.
Author: Ward, Jason
Section: 60(l), 60.022, 146.3(1.3)
Jason R. Ward, CPA, CA (613) 670-9035
June 19, 2015
Re: 2015 Federal Budget Measures Regarding RRIF Minimum Amount
We are writing in reply to your email of May 20, 2015, in which you ask several questions concerning the measures in the 2015 Federal Budget regarding the calculation of the minimum amount under a registered retirement income fund (RRIF). In particular, XXXXXXXXXX is seeking, XXXXXXXXXX, clarification of certain aspects of these measures which may impact upon their administration of RRIFs.
While your questions are addressed to our Directorate, they are primarily administrative in nature and thus fall outside the Directorate’s mandate. Consequently, we have coordinated the dissemination of your questions amongst the appropriate areas within the Canada Revenue Agency (CRA), and have outlined their responses below.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the “Act”) and every reference herein to a section, subsection, paragraph, subparagraph or clause is a reference to the relevant provisions of the Act or, where specified, the Income Tax Regulations (the “Regulations”).
Overview of 2015 Federal Budget RRIF Measures
The 2015 Federal Budget proposes to amend subsections 7308(3) and (4) of the Regulations to prescribe lower factors that apply for the purposes of determining the minimum amount that must be paid out of or under a RRIF for the 2015 and subsequent taxation years. The budget also proposes to provide relief for RRIF annuitants who withdraw more than the reduced minimum amount under their RRIF in 2015 and wish to recontribute all or a portion of the excess of their withdrawals over that amount back into a tax-sheltered vehicle. To this end, proposed section 60.022 will, inter alia, modify paragraph 60(l) to permit a RRIF annuitant to either re-contribute their “eligible RRIF withdrawal amount” to a qualifying registered plan (footnote 1) or to acquire a qualifying annuity, and to claim a deduction from income in respect of the contribution (i.e. to offset the income inclusion resulting from the RRIF withdrawals). These contributions will be deductible for the 2015 taxation year and must be made on or before February 29, 2016. The “eligible RRIF withdrawal amount” is the amount determined by the formula A - B, where:
A is the lesser of (i) the taxable RRIF withdrawals received in the year and (ii) the old unreduced minimum amount under the RRIF for 2015; and
B is the new reduced minimum amount under the RRIF for 2015.
Example: Assume that a 71 year old RRIF annuitant had $100,000 in his or her RRIF at the beginning of 2015. By multiplying this amount by the new factor of 5.28%, the minimum annual amount would be $5,280. If the RRIF carrier used the old factor of 7.38%, the minimum amount would be $7,380. If $7,380 was paid from the RRIF in 2015 using the prior age factor, then the annuitant has the option of re-contributing his or her eligible RRIF withdrawal amount of $2,100 ($7,380 -$5,280) back to his or her RRIF on or before February 29, 2016. If the RRIF annuitant does not wish to re-contribute his or her eligible RRIF withdrawal amount, then he or she will bring into taxable income the amount received in 2015 - $7,380 in this example.
Finally, the budget measures ensure that RRIF annuitants and administrators are not penalized because of the reduction of the minimum amount in 2015. Specifically, subsection 146.3(1.3) will ensure that the old unreduced minimum amount continues to apply in 2015 for the purposes of the spousal attribution rules and the determination of domestic and treaty-based non-resident withholding taxes on RRIF withdrawals.
As of the time of writing, these measures, which are included in Economic Action Plan 2015 Act, No. 1 (Bill C-59), have not yet received royal assent. However, consistent with its general approach for proposed income tax changes, the CRA will allow RRIF carriers and annuitants to act upon the proposals before they receive royal assent.
Questions and Answers
Will RRIF annuitants be given the choice to stay with their existing RRIF payment schedule for 2015 or are they required to follow the new RRIF factors for 2015? If so, would any withdrawals over the new reduced minimum amount be deemed to be an excess withdrawal?
The proposed measures are applicable to 2015 and subsequent taxation years. Consequently, it is expected that the new reduced minimum annual amount will apply for 2015 and subsequent taxation years. The RRIF carrier should be calculating the minimum amount for 2015 based on the new legislation, and is required to do so once Bill C-59 receives royal assent.
However, the Act permits an individual to withdraw more than the minimum amount from his or her RRIF. Therefore, if the RRIF carrier did calculate the 2015 minimum amount using the “old” prescribed factors and that amount was withdrawn and paid to the annuitant in 2015 – then the annuitant has the option of re-contributing the difference to his or her RRIF as explained above.
In addition, when an individual withdraws more than the minimum annual amount, the RRIF carrier is required to withhold tax on withdrawals in excess of that amount. However, the proposed legislation states that the old unreduced minimum amount (i.e. the minimum amount based on the “old” prescribed factors) for 2015 continues to apply to the exemption from withholding tax on RRIF withdrawals up to the 2015 minimum amount. Therefore, for the 2015 taxation year, the difference between the old unreduced minimum amount and the new reduced minimum amount would not create an “excess amount” for withholding tax purposes.
Must a re-contribution of an eligible RRIF withdrawal amount be made to the same financial institution and/or to the same plan type?
No. The proposed measures do not require a RRIF annuitant to re-contribute his or her eligible RRIF withdrawal to the same financial institution or to the same plan type. As explained above, a RRIF annuitant can re-contribute his or her eligible RRIF withdrawal amount to any of his or her RRIFs with any financial institution.
The measures also technically permit a RRIF annuitant to re-contribute his or her eligible RRIF withdrawal amount to a PRPP or to purchase a qualifying annuity; however, from a practical standpoint, the most likely scenario is for those RRIF annuitants who wish to re-contribute their eligible RRIF withdrawal amount under the new measures to make the re-contribution to a RRIF.
A RRIF annuitant can only re-contribute his or her eligible RRIF withdrawal amount to a registered plan or annuity under which he or she is the annuitant or member, as the case may be. That is, as explained above, an individual cannot re-contribute his or her eligible RRIF withdrawal amount to a RRIF or annuity under which his or her spouse or common-law partner is the annuitant.
Can CRA confirm that a RRIF annuitant, and not the RRIF’s carrier, is required to ensure that a re-contribution of his or her eligible RRIF withdrawal amount is within the permissible limits of new section 60.022?
The CRA would expect a RRIF carrier to provide a RRIF annuitant seeking to take advantage of the proposed measures with all information necessary to determine his or her eligible RRIF withdrawal amount. This would include the amount of the new reduced minimum amount, as well as the old unreduced minimum amount, in respect of his or her RRIF for the 2015 taxation year.
The CRA would require such information, in the form of a letter, to confirm an amount claimed as a deduction on the RRIF annuitant’s income tax return for 2015. In addition, the CRA would also require a contribution receipt reflecting the amount of the re-contribution (see the response to question 4 below for more information on the requirement to issue a contribution receipt).
Will CRA be following the previously issued guidance under paragraph 60(l)(v) for the re-contribution process, or will new guidance be issued?
A RRIF annuitant who re-contributes his or her eligible RRIF withdrawal amount under the new measures will be permitted a deduction for the re-contribution amount on line 232 of his or her income tax return for 2015. A separate re-contribution receipt should be issued by the administrator or carrier of the qualifying registered plan, or qualifying annuity provider, that receives the re-contribution. The receipt should show that the amount received was a contribution to the qualifying registered plan. In addition, the receipt should include:
* the name of the administrator or carrier of the registered plan, or qualifying annuity provider, as the case may be;
* the signature of an authorized official;
* the contract number;
* the RRIF annuitant's name and social insurance number;
* the total amount received; and
* the date the amount was received.
Receipts that bear a facsimile signature of an authorized official, without countersigning or initialling, are acceptable if the receipts are serial-numbered and the issuer retains a copy of each receipt issued.
Where the re-contribution is made to a RRIF or to acquire a qualifying annuity, the RRIF carrier or annuity provider, as the case may be, is not required to provide copies of the contribution receipts to the CRA. Where the re-contribution is made to a PRPP, the contribution must be included on the 2015 Pooled Registered Pension Plan Annual Information Return.
What income attribution rules apply to the client where the new factors create a taxable excess and the RRIF is spousal or common-law partner plan?
As mentioned above, new subsection 146.3(1.3) ensures that the spousal attribution rules applicable in respect of RRIF withdrawals made in 2015 from a spousal or common-law partner RRIF – i.e. the attribution rules in subsection 146.3(5.1) – are based on the unreduced minimum amount determined using the “old” prescribed factors for 2015.
What changes to the 2015 XML schema can the industry expect and when will the specs be provided?
No changes to the XML schema are necessary in respect of this budget measure.
Will CRA issue Public FAQ documents (as published in 2008), with direction for taxpayers?
Yes. We are in the process of finalizing the Q&As and hope to post them on the CRA website before the end of June, 2015.
How are RRIF carriers expected to report old and new minimum amounts (or a combination thereof) in the existing tax slip? Will there be changes to any reporting?
The CRA will not require any changes to existing reporting requirements. This means that the excess amount reported in box 24 of the T4RIF slip should continue to be based on the old unreduced minimum amount for 2015. However, as explained in questions number 3 and 10, a RRIF carrier will be required to provide additional information to a RRIF annuitant or qualifying beneficiary in certain circumstances (i.e. where a re-contribution is made under the new measures, or in situations involving death).
For transfers of RRIFs between RRIF carriers, the transferring carrier is required to pay the minimum amount before transferring the RRIF. What minimum amount is required to be paid, the old unreduced minimum amount or the new reduced minimum amount? Considering most RRIF carriers do not have current system capability to calculate/report the new minimum amount, a manual calculation would be required. For ease of administration, could RRIF carriers continue to pay the old unreduced minimum amount for 2015?
Before Bill C-59 receives royal assent, the transferring RRIF carrier can continue to use the “old” prescribed factors for calculating the minimum amount before transferring property to another RRIF. After Bill C-59 receives royal assent, the transferring RRIF carrier must use the “new” prescribed factors for calculating the minimum amount. Where the RRIF carrier calculated the 2015 minimum amount using the “old” prescribed factors and thus paid the old unreduced minimum amount to the annuitant in 2015, the annuitant has the option of re-contributing the difference (i.e. the eligible RRIF withdrawal amount) to his or her RRIF as noted above.
For the purpose of calculating the eligible designated benefit for a RRIF being distributed in 2015 due to the death of the annuitant, should this calculation be based on the old unreduced minimum amount or the new reduced minimum amount?
The proposed measures are applicable to 2015 and subsequent taxation years. Consequently, it is expected that the new reduced minimum amount will apply for 2015 and subsequent taxation years. The RRIF carrier should be calculating the eligible amount of a particular individual for 2015 based on the new reduced minimum amount, and is required to do so once Bill C-59 receives royal assent.
The CRA would require such information, in the form of a letter, to confirm an amount claimed as a deduction on the qualifying beneficiary’s income tax return for 2015.
RRIF carriers have existing system capabilities to issue a 60(l) contribution receipt under a RRIF. To simplify the administration process can RRIF carriers issue a 60(l) receipt for the re-contribution of the difference between the old unreduced and new reduced minimum amount, instead of having to update systems to comply with a new XML schema?
The CRA will not be creating new XML schemas for RRIF, RPP, PRPP or qualified annuity contribution receipt purposes.
See the response to question number 4 for more information on the requirement to issue a contribution receipt when an individual re-contributes their eligible RRIF withdrawal amount to a qualifying registered plan or acquires a qualifying annuity.
We trust that these comments will be of assistance.
Mary Pat Baldwin, CPA, CA
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Qualifying registered plans include: a RRIF, a pooled registered pension plan (PRPP), and – where the RRIF annuitant has not yet reached the age limit for contributing to such a plan, which is unlikely – a registered retirement savings plan (RRSP) or a specified pension plan (SPP). Note that the RRIF annuitant must be the annuitant or member under the recipient plan, as the case may be (i.e. the eligible RRIF withdrawal amount cannot be contributed to a spouse’s or common-law partner’s plan).
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