Certain circumstances allow for higher contributions
Q: In 2006, I accepted a severance package from my employer. Last week, I received my T4s from work. It includes the entire $65,000. It does not indicate my RRSP rollover for $28,000. I have more than sufficient RRSP room for this amount. I don’t want to pay the entire tax on this amount. Should I call my past employer or call Revenue Canada?
A: Individuals that receive a severance package may qualify for a special RRSP contribution treatment. Generally, RRSP contributions are limited to the RRSP deduction limit indicated on the most recent income tax assessment by (provided it is accurate) CRA. However, under certain circumstances, cash payments that qualify for special rollover treatment allow the recipient to contribute above their normal RRSP deduction limit.
If you directed your employer to rollover the eligible amount of your severance to an RRSP, then you should receive an RRSP deduction slip from the financial institution where the investment was made. The mechanics of reporting the severance are to report the entire severance amount ($65,000) and deduct the eligible RRSP contributions ($28,000).
You can follow up by calling the financial institution where your RRSP money was invested. CRA will not be able to assist you unless they have been provided a copy from the financial institution.
Q: I would like to purchase my first home this year and would like to use my RRSP under the Home Buyers Plan (HBP), but I am also in the process of a job acceptance in Plattsburg, New York. If I accept a position in New York, will I qualify to use HBP?
A: You must be a resident of Canada at the time of your closing of a home in order for you to qualify to withdraw funds from your RRSP under the HBP. If your placement in New York is temporary you may wish to maintain your Canadian residency. You should contact your accountant for information about residency status.
Under the HBP, an individual may withdraw up to $20,000 tax-free from their RRSP. A spouse also qualifies to withdraw the same amount. Form T1036, HBP “Request to withdraw funds from an RRSP,” must be completed. Your bank or financial institution must complete Area 2 and send one T4RSP slip to CRA and one to you for tax filing.
Q: Each year, for the past three years we have repaid my RRSP HBP. Unfortunately, last year we were unable to repay the required $1,333. Do I make catch-up payments in the following years?
A: No! Withdrawals under the HBP-RRSP must be repaid 1/15th of the monies borrowed each year to your RRSPs. Amounts less than required is reported on line 129 of your tax return as income and will be subject to tax.
Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to email@example.com.