The 2011 Budget introduced a number of changes to the rules for registered plans.
RRSPs and RRIFs
Some of the changes are intended to stop certain abuses. One targeted loophole applies to schemes where people generate tax-free withdrawals from Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs).
There are also new rules for investments that are allowed to be held in registered plans:
- prohibited investments – examples: debt of the RRSP or RRIF holder, or investments in entities in which the RRSP or RRIF holder holds an interest of 10% or more.
- non-qualified investments – examples: shares in private holding companies, foreign private companies, real estate.
If you buy these types of investment for your RRSP or RRIF, you will be charged a tax equal to 50% of the fair market value. You may apply for a refund if you dispose of the investment from your RRSP or RRIF by the end of the year following the year the tax applied.
If you buy prohibited or non-qualified investments for your RRSP or RRIF, you will be charged a tax equal to 50% of their fair market value.
RESPs
These changes make it easier to transfer Registered Education Savings Plan (RESP) savings among your children after 2010:
- You can transfer money between individual RESPs for siblings without any tax penalties.
- You do not have to repay any Canada Education Savings Grants (CESGs) when you make the transfer.
The child who benefits must be under 21 years old at the time of the transfer.
You can transfer money between individual RESPs for siblings without any tax penalties. And you do not have to repay any government grants.
RDSPs
If your life expectancy is 5 years or less, you no longer have to repay Canada Disability Savings Grants and Canada Disability Savings Bonds if you withdraw them from your Registered Disability Savings Plan (RDSP) within 10 years of receiving them.
IPPs
Starting in the 2012 tax year, you have to make minimum withdrawals each year from an Individual Pension Plan (IPP) once you reach age 72. Other new rules restrict your ability to contribute to an IPP in relation to past years of service.
Pension plan wind-ups
For insolvencies that occurred before 2012, the Canada Revenue Agency (CRA) will clarify that lump-sum payments received by former employees and retirees in lieu of rights to health and dental coverage by an insolvent employer will not be treated as income for tax purposes. Learn more about the security of defined benefit pension plans.