Deferred Profit Sharing Plans and Registered Retirement Savings Plans (RRSP)
DPSP Deferred Profit Sharing Plan
FPR Foreign Property Rule
PA Pension Adjustment
PSPA Past Service Pension Adjustment
Arm’s Length: someone that is no way related to the employer.
Carry-forward: a process by which the balance of RRSP contribution room remaining after that year’s contributions may be carried forward to be used in a future calendar year.
Common-law Partner: a person who cohabits with taxpayer in a conjugal relationship and who has either so cohabited for at least one year, or who is the parent of the taxpayer’s child. This also provides for termination of the common-law relationship if the partners cease cohabitation for a period of at least 90 days because of a breakdown in their relationship.
Contribution Room: the amount that an individual may contribute to an RRSP and deduct from his current income, after accounting for current income and any pension adjustments and carry-forward amounts.
Current Contribution Limit: the limit beyond which contributions to any form of retirement savings are no longer tax deducted; defined as 18% of earned income in the previous year, to a maximum set by the Income Tax Act. Also referred to as the RRSP dollar limit.
Deferred Profit Sharing Plan (DPSP): a form of trust fund, registered with Revenue Canada in accordance with the Income Tax Act, to which an employer makes contributions on behalf of its employees.
Earned Income: the basis for calculating the current RRSP contribution limit; generally includes net income from employment, business and rentals.
Foreign Property: generally consists of shares, units and debts issued by non-resident entitles.
Foreign Property Rule (FPR): in respect of deferred income plans generally limits the amount of foreign property that such a plan can hold. This limit applies to each RRSP of an individual.
Foreign Property Rule Limit: the limit is 20% from 1994 to 1999, 20% from 1994 to 1999, 25% for 2000, and 30% after 2000.
Group RRSP: a variation on basic RRSPs typically sponsored by an employer, union or professional association and managed by a trust or insurance company on behalf of the group.
Mature RRSP: an RRSP matures when it begins to provide retirement income. All plans must mature by the end of the year in which the annuitant turns age 69.
New RRSP Contribution Room: the new room arising in the current year, calculated as the current contribution limit plus pension adjustment reversals from the current year, less any pension adjustment from the previous year or a past service pension adjustment incurred in the current year.
Notice of Assessment: a form received by every taxpayer who has filed a tax return for the previous year that summarizes CCRA’s processing of that return.
Past Service Pension Adjustment (PSPA): represents the value of a past service event, including retroactive benefit upgrades and the purchase of additional pension credits.
Pension Adjustment (PA): a calculated number that represents the value of benefits that have accrued during the year under a registered pension plan or deferred profit sharing; used to reduce a member’s RRSP contribution room.
Pension Adjustment Reversal (PAR): increases the individual’s RRSP deduction limit by the amount by which the PAs and PSPAs exceed the termination benefit, restoring the RRSP room that would otherwise be lost permanently (ITR 8304.1)
Retiring Allowance Rollover: a process whereby all or portions of a retiring allowance may be transferred into an RRSP and deducted from income. The rollover is subject to a limit of $2,000 for each year of service prior to 1996 in which the individual earned no vested pension or DPSP benefits.
Segregated Funds: a portfolio of financial assets that are held in trust by an insurance company for the beneficiaries. The term, “segregated”, refers to the fact that, unlike the accumulating funds for some insurance policies, these funds are kept separate or segregated from the assets of the insurance company. The segregated fund is taxed as an inter vivos trust and elects under Section 104(6) of the Income Tax Act to have all of its taxable income flow through to the beneficiaries of unit holders. Segregated funds are primarily designed to provide a more flexible alternative for investing the accumulating fund of a life insurance policy. A segregated fund cannot be part of the exempt accumulating fund for a life insurance policy. Rather it is a trust. The investment income is taxable to the policyholders whether or not any amounts have been paid to the policyholder by the trust. The income retains its nature as it flows through to the policyholders and is taxable as capital gains, capital losses, dividends eligible for the dividend tax credit and other forms. A segregated fund, unlike a mutual fund, flows a capital loss through to the fund owner. The disposal of all or part of the interest in a segregated fund can give rise to a capital gain or loss. Also called seg fund.
Self-directed RRSP: an RRSP, set up by the taxpayer, and established to hold a wide-range of investments eligible for an RRSP, essentially a brokerage account for registered funds
Spousal RRSP: any RRSP established for the benefit of a taxpayer’s spouse or common-law partner and where the contributions are made and deducted by the taxpayer.
Total RRSP Contribution Room: can be determined by calculating an individual’s current contribution limit, adding any carry- forward contribution room from previous years and any other special contribution limits, and subtracting any pension adjustments from the previous year or past service pension adjustments incurred in the current year.