Definitions for RRSPs
An advantage is any benefit or debt that is conditional on the existence of the RRSP or RRIF, subject to certain exceptions for normal investment activities and conventional incentive programs.
An advantage also includes any benefit that is an increase in the total fair market value (FMV) of the property of the RRSP or RRIF that is reasonably attributable to any one of the following:
- a transaction or event (or series) that would not have occurred in a normal commercial or investment context between arm’s length parties acting prudently, knowledgeably, and willingly, and one of the main purposes of which is to benefit from the tax-exempt status of the RRSP or RRIF
- a payment received in substitution for a payment for services rendered by the annuitant (or non-arm’s length person) or for a return on investment on non-registered property
- a swap transaction
- a specified non-qualified investment income that has not been paid from the RRSP or RRIF within 90 days of the annuitant receiving a notice from CRA requiring removal
An advantage also includes a registered plan strip, or any benefit that is income or a capital gain that is reasonably attributable to one of the following:
- a prohibited investment
- an artificial diversion of an amount away from the RRSP or RRIF
For more information on advantages, see Income Tax Folio S3-F10-C3, Advantages -- RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
Generally, an annuitant of an RRSP or a RRIF is the person for whom the plan or fund provides a retirement income. In certain circumstances, the surviving spouse or common-law partner may qualify as the annuitant when, because of the death, they become entitled to receive benefits out of the plan or fund.
An arm’s length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.
For more information on Arm’s length, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s length.
A person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. They:
- have been living with you in a conjugal relationship, and this current relationship has lasted for at least 12 continuous months (see note below)
- are the parent of your child by birth or adoption
- have custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support
In this definition, “12 continuous months” includes any period that you were separated for less than 90 days because of a breakdown in the relationship.
A fixed or single lump-sum payment from your RRSP annuity that is equal to the current value of all or part of your future annuity payments from the plan.
Deferred profit sharing plan (DPSP)
An employer-sponsored plan we register, in which the employer shares the profits of a business with all the employees or a designated group of employees.
Defined benefit provision
The terms of a registered pension plan (RPP) that promise a certain level of pension on retirement, based on the employee's earnings and years of service.
We calculate your earned income by adding your employment earnings, self-employment earnings, and certain other types of income, then subtracting specific employment expenses and business or rental losses. To calculate your earned income, see Step 2 of Chart 3.
Qualifying performance income (generally endorsement income, prize money or income from public appearances received by an amateur athlete) contributed to an amateur athlete trust (AAT) qualifies as earned income in determining the RRSP deduction limit of the trust’s beneficiary.
Fair market value (FMV)
FMV is generally considered to mean the highest price expressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm’s length and under no compulsion to buy or sell.
For information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuation.
If you are child or grandchild of an annuitant, you are generally considered financially dependent on that annuitant at the time of their death if, before that person's death, you ordinarily resided with and depended on the annuitant, and you meet one of the following conditions:
- your net income for the previous year (shown on line 23600 of your income tax and benefit return) was less than the unreduced maximum basic personal amount (line 30000 of your income tax and benefit return) for that previous year
- your financial dependence was due to a mental or physical infermity and your net income for the previous year was equal to or less than the unreduced maximum basic personal amount plus the disability amount (line 31600 of your income tax and benefit return) for that previous year
If, at the time of the annuitant’s death, you are away from home because you were attending school, we still consider you to have resided with the annuitant.
If you meet one of the above conditions and you did not reside with the annuitant at the time of their death but received significant financial support from the annuitant, we may consider you to be financially dependent on the annuitant at the time of their death, if you can establish that you were. To do so, you or the legal representative should submit a request in writing to your tax services office explaining why we should consider you to be financially dependent on the annuitant at the time of their death.
If your net income was more than the amounts described above, we will not consider you to be financially dependent on the annuitant at the time of their death, unless you can establish that you were by submitting a request as described above.
A plan or arrangement maintained primarily to benefit non-residents for services they perform outside Canada.
An RRSP that is paying you retirement income.
Money purchase provision
The terms of a registered pension plan (RPP) under which the amount of your pension depends on how much you and your employer contribute to the RPP for you.
Generally refers to a relationship or transaction between persons who are related to each other. However, a non-arm’s length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances.
For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s length.
Any property that is not a qualified investment for the RRSP or RRIF trust.
For more information on non-qualified investments, see Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
Pooled registered pension plan (PRPP)
A retirement savings plan to which you or your employer or both can contribute. Any income earned in the PRPP is usually exempt from tax as long as it remains in the plan.
This is property to which the RRSP or RRIF annuitant is closely connected, it includes any of the following:
- a debt of the annuitant
- a debt or share of, or an interest in, a corporation, trust or partnership in which the annuitant has a significant interest (generally a 10% or greater interest, taking into account non-arm's length holdings)
- a debt or share of, or an interest in, a corporation, trust or partnership with which the annuitant, does not deal at arm's length
A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation or by an approved private insurer. It also does not include certain investment funds and certain widely held investments which reflect a low risk of self-dealing.
For more information, see Income Tax Folio S3-F10-C2, Prohibited Investment – RRSPs, RRIFs, RESPs, RDSPs and TFSAs.
An investment in properties (except real property), including money, guaranteed investment certificates, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange.
For more information, see Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, and TFSAs.
Qualifying group plan amounts
Often referred to as "mandatory group plan amounts". They are contribution amounts that you are required to make to a PRPP or a "qualifying arrangement". An arrangement is a qualifying arrangement if all of the following apply:
- it is for two or more individuals
- the contributions are amounts you are entitled to for services you provided
- the contributions are remitted to the RRSP by the person who pays you, or by an agent for that person
Qualifying group plan amounts do not include amounts that you could have prevented from being paid after beginning to participate in the arrangement and within the 12 months before the amount was paid.
For purposes of the Canada-U.S. tax convention, a United States qualifying retirement plan is a plan that is generally exempt from income tax in the U.S. and is operated primarily to provide pension or retirement benefits. Common qualifying U.S. retirement plans include 401(k) arrangements. For a complete list of qualifying U.S. retirement plans, go to Convention Between Canada and the United States of America and see paragraph 10.
Registered disability savings plan (RDSP)
A trust arrangement between an individual (the holder) and a trust company in Canada (the issuer) that provides for the long-term financial security of a beneficiary who has a prolonged and severe mental or physical impairment.
Registered education savings plan (RESP)
A registered contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber generally makes contributions to the RESP, which earns income, paid in the form of educational assistance payments to one or more identified beneficiaries.
Registered pension plan (RPP)
A pension plan that we have registered. Funds are contributed by an employer, or by an employer and employees, to provide a pension to employees when they retire.
Registered plan strip
The amount of a reduction in the FMV of property of the RRSP or RRIF, if the value is reduced as part of a transaction, or event (or series) for which one of the main purposes is to enable the annuitant (or non-arm’s length person) to obtain a benefit in respect of the property of the RRSP or RRIF or to obtain a benefit as a result of the reduction. Exceptions are provided for plan distributions that are included in income, or specifically excluded from income (such as a tax-deferred transfer between plans).
For more information on a registered plan strip, see Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
Registered retirement income fund (RRIF)
A fund you establish with a carrier and that we register. You transfer property to the carrier from an RRSP, a PRPP, an RPP, an SPP, or from another RRIF, and the carrier makes payments to you.
Registered retirement savings plan (RRSP)
A retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.
The amount you pay, in cash or in kind, at the time you contribute to an RRSP. In kind contributions consist of the FMV of the property.
The amount you indicate on line 20800 of your income tax and benefit return. Your RRSP deduction claim is limited by the amount of your RRSP, PRPP, or SPP contributions previously made and your RRSP deduction limit.
RRSP deduction limit
The maximum amount you can deduct from contributions you made to your RRSP, PRPP, SPP and to your spouse’s or common law partner’s RRSP or SPP for a year (excluding transfers to your RRSPs of certain types of qualifying income). The calculation is based, in part, on your earned income in the previous year. Pension adjustments (PA), past service pension adjustments (PSPA), Pension adjustment reversals (PAR), and your unused RRSP deduction room at the end of the previous year are also used to calculate the limit.
The maximum amount of new RRSP deduction room that you can create for a year and is one of the amounts used to determine your RRSP deduction limit for that year. See Step 3 of Chart 3.
RRSP excess contributions
Generally, the amount of your RRSP, PRPP, and SPP contributions that is more than your RRSP deduction limit for the year plus $2,000. If you have RRSP excess contributions, you may have to pay a tax of 1% per month on those contributions.
For more information, see Tax on RRSP excess contributions.
Related persons are not considered to deal with each other at arm’s length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.
For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s length
This is an amount you receive on or after retirement from an office or employment in recognition of long service. It can include payment for unused sick leave and amounts you receive for loss of office or employment, whether as a payment of damages or a payment under an order or judgment of a tribunal. For more information, see Chart 8.
Specified non-qualified investment income
Income (excluding the dividend gross-up) or a capital gain that is reasonably attributable, directly or indirectly, to an amount that is taxable for any RRSP or RRIF of the annuitant (for example, subsequent generation income earned on non-qualified investment income or on income from a business carried on by an RRSP or RRIF).
Specified pension plan (SPP)
A pension plan or similar arrangement that has been prescribed under the Income Tax Regulation as a "specified pension plan" for purposes of the Income Tax Act. Many of the rules related to RRSPs also apply to SPPs.
Specified retirement arrangement
A pension plan that we do not register for income tax purposes and is either not funded or only partly funded.
Spousal or common-law partner RRIF
A RRIF that received amounts or transfers of property from your spousal or common-law partner RRSP or any of your spousal or common-law partner RRIFs.
Spousal or common-law partner RRSP
An RRSP that you establish to pay yourself income at maturity that you or your spouse or common-law partner contributes to. Also, an RRSP that received amounts or transfers from any of your other spousal or common-law partner RRSPs or from your spousal or common-law partner RRIF.
A person to whom you are legally married.
This is any transfer of property between the RRSP or RRIF and its annuitant (or non-arm's length person). Exceptions are provided for contributions to and distributions from the plan, purchase and sale transactions between an individual’s two plans with the same tax attributes (for example, RRSP to RRSP or RRIF) and transactions relating to insured mortgages.
For more information on swap transactions and applicable transitional rules, see Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
Transitional prohibited investment benefit
This expression is relevant only if an individual held one or more prohibited investments in their RRSP or RRIF on March 23, 2011, and continues to hold the investment in their RRSP or RRIF in the year. An individual's transitional prohibited investment benefit for a tax year is the total of any income earned (excluding dividend gross-up) and capital gains realized in the tax year on these investments, less any capital losses realized on these investments in the year. For this purpose, the amount of a capital gain realized is the positive difference between the FMV of the property when it is disposed of by the RRSP or RRIF, or when it ceases to be a prohibited investment (less reasonable costs of disposition, if any) and the FMV of the property on March 22, 2011. The amount of a capital loss is the negative difference.
Unrelated persons may not be dealing with each other at arm’s length at a particular time. Each case will depend upon its own facts. The following criteria will be considered to determine whether parties are not dealing at arm’s length:
- whether there is a common mind that directs the bargaining for the parties to a transaction
- whether the parties to a transaction act in concert without separate interests; “acting in concert” means, for example, that parties act with considerable interdependence on a transaction of common interest
- whether there is de facto control of one party by the other because of, for example, advantage, authority or influence
For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.
Generally, an RRSP that has not yet started to pay you retirement income.
Unused RRSP, PRPP and SPP contributions
The amount of your RRSP, PRPP and SPP contributions that you could not deduct or have chosen not to deduct, and that you did not designate as an HBP or LLP repayment for any year. Use Schedule 7, RRSP, PRPP and SPP Unused Contributions, Transfers, and HBP or LLP Activities, to keep track of your RRSP, PRPP and SPP contributions. This amount is carried forward to the following year and you can use it as a deduction up to your RRSP deduction limit for that year.
Unused RRSP deduction room at the end of the year
Generally, your RRSP deduction limit for the year minus the amount you deducted for RRSP, PRPP and SPP contributions for that year.
If you rendered services as an employee in the United States in the year, the amount you contributed in the year to a qualifying retirement plan in the United States and deducted in your income tax and benefit return will reduce your RRSP deduction room.
For more information, see Other deduction.
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