Proposed tax changes related to the Saskatchewan Pension Plan
On December 10, 2010, the Honourable James M. Flaherty, Minister of Finance Canada, and the Honourable Ken Krawetz, Saskatchewan's Deputy Premier and Finance Minister, released draft legislative amendments related to the Saskatchewan Pension Plan (SPP).
The SPP is a voluntary defined contribution pension plan established by the Government of Saskatchewan in 1986.
The purpose of the proposed legislative changes is to accommodate changes to the SPP, as outlined by the Government of Saskatchewan in its 2010 budget. These amendments bring the treatment of the SPP in line with that of registered pension plans and registered retirement savings plans.
Visit the Saskatchewan Pension Plan website for more information on SPPs.
Visit the Department of Finance Canada website for more information on the proposed changes to the Income Tax Act.
- What are the proposed changes?
- When will these changes take effect?
- Will the Canada Revenue Agency (CRA) permit individuals to take advantage of these proposals before the law has passed?
- What happens if I contributed more than $600 in 2010 or in a subsequent year, or transferred funds from my registered pension plan (RPP), registered retirement savings plan (RRSP), or registered retirment income fund (RRIF), and the proposed law is not passed?
- What if my financial institution or RPP administrator does not allow me to transfer property (funds) from my RRSP, RRIF or RPP to the SPP before the law is passed?
1. What are the proposed changes?
The proposed amendments to the Income Tax Act will allow for:
- an increase in the annual contribution limit to the SPP to $2,500 from $600, subject to an individual's available RRSP contribution room;
- transfers from RPPs, RRSPs, and RRIFs to the SPP within existing limits on such transfers under the RPP/RRSP/RRIF rules, subject to any additional limits imposed by the SPP;
- SPP annuity payments to be eligible for the pension income credit and pension income splitting;
- rollovers of SPP funds on death to the RRSP or Registered Disability Savings Plan of a financially dependent infirm child or grandchild;
- SPP contributions will be taken into account in determining RRSP over-contributions; and
- SPP savings will be subject to the same income attribution rules as RRSPs.
2. When will these changes take effect?
If the proposed changes receive Parliamentary approval, the changes will apply to 2010 and subsequent taxation years.
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.
It is the longstanding practice of the CRA to allow taxpayers to act upon proposed tax measures on the assumption that the legislation for these measures will be enacted. However, the parties involved must ensure that the transaction is in accordance with the proposed changes in law.
4. What happens if I contributed more than $600 in 2010 or in a subsequent year, or transferred funds from my RPP, RRSP, or RRIF, 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, a financial institution, or an RPP administrator 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 the SPP.
5. What if my financial institution or RPP administrator does not allow me to transfer property (funds) from my RRSP, RRIF or RPP to the SPP before the law is passed?
Financial institutions and RPP administrators can administer the proposed changes before the law is passed. Ultimately, it is up to those institutions or administrators to decide whether to do so.
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