Important Notice

Economic Statement - Proposed Measure for Annuitants of Registered Retirement Income Funds (update)

On November 27, 2008, the Honourable James M. Flaherty, Minister of Finance, presented the government's 2008 Economic and Fiscal Statement. That statement included proposed changes to the calculation of the 2008 required minimum withdrawal for registered retirement income funds (RRIF).

The following questions and answers are provided to help financial institutions and RRIF annuitants understand the proposed changes.

1. What are the proposed changes?
2. Given that Parliament has prorogued, what is the status of the Government's proposal to reduce the required RRIF minimum withdrawals for 2008 by 25% and to permit related re-contributions?
3. Will the Canada Revenue Agency (CRA) permit individuals to take advantage of these proposals before the law has passed?
4. What happens if my financial institution does not permit the payout of the reduced minimum amount or allow me to make a re-contribution before the law is passed?
5. What happens if I received a reduced minimum amount or made a re-contribution, and the proposed law is not passed?
6. Is the 25% reduction to the minimum amount applicable for 2008 and future years?
7. Is the 25% reduction to the minimum amount available only for individuals 71 years of age and older?
8. Will a re-contribution made in 2009 affect the minimum amount calculation for 2009?
9. I received my 2008 minimum amount payment of $10,000 by way of a transfer of 1,000 shares of a publicly-traded company. Can I make my re-contribution by transferring 250 of the shares back to my RRIF, even though the share price has changed?
10. Do the proposed changes apply to Life Income Funds and other locked-in RRIFs?
11. Does the re-contribution have to be contributed to the same RRIF from which my minimum amount was paid to me?
12. Can I make the re-contribution to my registered retirement savings plan (RRSP) instead?

1.  What are the proposed changes?

The main proposed changes are the following:

• The minimum amount that must be withdrawn from RRIFs will be reduced by 25% for 2008. For example, if the 2008 minimum amount would have been $10,000, the reduced minimum amount will be $7,500.
• Individuals who have already withdrawn more than the reduced 2008 minimum amount, based on the existing law, will be permitted to re-contribute to their RRIFs an amount up to the 25% proposed reduction. The re-contribution will be deductible for the 2008 taxation year. 
• Individuals who opt to make a re-contribution can do this up to March 1, 2009, or 30 days after the proposed legislative changes are enacted by Parliament, whichever is later.

2.  Given that Parliament has prorogued, what is the status of the Government's proposal to reduce the required RRIF minimum withdrawals for 2008 by 25% and to permit related re-contributions?

The proposal was included in a detailed Notice of Ways and Means Motion tabled in the House of Commons on Friday, November 28, 2008.
It is the longstanding practice of the Canada Revenue Agency (CRA) to allow taxpayers to act upon proposed tax measures on the assumption that the legislation for these measures will be enacted.

It is the Government's intention to proceed with the RRIF proposal.

3.  Will the Canada Revenue Agency (CRA) permit individuals to take advantage of these proposals before the law has passed?

Yes. Many income tax proposals are expressed to have immediate application but require Parliamentary approval to take effect. In these cases, taxpayers will often base their actions on the assumption that the change will be adopted. 

Consistent with our general approach for other proposed income tax changes, the CRA will allow financial institutions and individuals to act upon the proposals before the law is passed. Both parties must, however, ensure that the transaction is in accordance with the proposed changes in law.

4.  What happens if my financial institution does not permit the payout of the reduced minimum amount or allow me to make a re-contribution before the law is passed?

The CRA has advised financial institutions that they can administer the proposed changes before the law is passed. Ultimately, it is up to those institutions to decide whether to do so.

Note that the proposed changes provide for a period of 30 days after the law is passed to make your eligible re-contribution. 

5. What happens if I received a reduced minimum amount or made a re-contribution, and the proposed law is not passed?

A taxpayer remains potentially liable to the effects of the current law if the proposed change is not adopted. This means that Parliament's adoption of the proposed law is ultimately what matters.

If a taxpayer or a financial institution has, in good faith, acted on the basis of the proposal that, subsequently, is not passed into law, the CRA would not penalize them for acting upon the proposal. However, the taxpayer may be required to withdraw the ineligible amount from their RRIF. 

6. Is the 25% reduction to the minimum amount applicable for 2008 and future years?

No. The proposed change applies only for 2008.

7. Is the 25% reduction to the minimum amount available only for individuals 71 years of age and older?

No. The 25% reduction applies to all RRIF annuitants, regardless of age. However, it does not affect individuals who turned 71 in 2008 because changes were made in 2007 that deemed the 2008 minimum amount for these individuals to be nil.

8. Will a re-contribution made in 2009 affect the minimum amount calculation for 2009?

No. The minimum amount for 2009 is based upon the fair market value of the RRIF property at the beginning of 2009.

9.  I received my 2008 minimum amount payment of $10,000 by way of a transfer of 1,000 shares of a publicly-traded company. Can I make my re-contribution by transferring 250 of the shares back to my RRIF, even though the share price has changed?

The amount that you may re-contribute is limited to $2,500 (25% of the minimum amount of $10,000). If you choose to make an in-kind re-contribution, the fair market value of the property at the time of the re-contribution must be used.

10.  Do the proposed changes apply to Life Income Funds and other locked-in RRIFs?

Yes. These proposed changes apply to all types of RRIFs.

11.  Does the re-contribution have to be contributed to the same RRIF from which my minimum amount was paid to me?

No. The re-contribution can be made to any of your RRIFs.

12.  Can I make the re-contribution to my registered retirement savings plan (RRSP) instead?

Yes. The re-contribution may be made to either your RRIF or RRSP. However, to contribute the amount to your RRSP, you have to be 71 years of age or younger at the end of the year in which you make your contribution. This is because you have to convert your RRSP to a RRIF by the end of the year in which you turn 71 years of age.