Tax Question:

In Canada, we have a number of plans that are often referred to as “registered plans”, what are these?

Facts:

A registered plan is a special type of account in Canada that is registered with the Canada Revenue Agency (CRA). The CRA outlines all of the special rules, conditions and requirements for opening, maintaining and closing a registered account.

Certain types of registered plans are governed by legislation or organizations in addition to the CRA, including but not limited to the Government of Canada and Provincial or Federal pension legislation.

Discussion:

The most common registered plan will be a registered retirement savings plan (RRSP) which allows Canadian individual taxpayers to make tax deductible contributions, enjoy tax-free growth and make taxable withdrawals from the plan, ideally in retirement. RRSPs are designed to encourage Canadians to save and invest for retirement.

Pension plans, both defined contribution (DC) and defined benefit (DB), are designed around the same principle, to encourage Canadians to save, invest and enjoy additional income in retirement. When pension funds are transferred from a DC or DB plan to a self-directed individual plan, these are transferred into locked-in retirement accounts (LIRAs) and locked-in RRSPs (LRSP). While these accounts are almost identical to RRSPs they are subject to pension legislation similar to the original DC or DB plan. Upon retirement, LIRAs and LRSPs are converted to life income funds (LIFs) which can provide income similar to the original pension plan.

Please watch for further FAQs on TFSAs, RDSPs and RESPs.

Recommendation

If you have questions about Canadian registered plans or want to know if any of these plans are appropriate for your needs, please contact us at 604-888-4200 or Johannes Weinmar, Financial Advisor with Raymond James at johannes [dot] weinmar [at] raymondjames [dot] ca.