Certain benefits will disappear if you don’t act before their rapidly approaching Dec. 31 deadlines.
This includes AgriStability/AgriInvest forms for the 2009 program year.
Although the deadline to submit the forms without penalty was Sept. 30 (June 30 for Ontario participants), there is one last chance to submit the forms for the 2009 program year, albeit with a penalty.
The penalty under the AgriStability program is a $500 per month (or part month) reduction in benefits.
Under AgriInvest, the allowable net sales used to calculate the maximum matchable deposit will be reduced by five percent for each month (or part of the month) that the application was submitted late.
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The other Dec. 31 deadline concerns those who turned 71 this year.
The federal government requires them to wind up their Registered Retirement Savings Plan by the end of the year.
It means finding the best way to collapse an RRSP into something such as an annuity or a Registered Retirement Income Fund (RRIF) to minimize the tax bill.
If they don’t, the Canadian Revenue Agency will treat the entire RRSP savings as income in 2010. The tax hit would be substantial.
Those who have RRIFs must withdraw funds each year in minimum equal amounts depending on age, which means it may be possible to reduce tax liability in the early years of RRIF withdrawals.
Making a one-time election with CRA when you start up a RRIF will allow you to register the RRIF based on the age of your spouse if that person is younger.
For example, if you are 71 and your spouse is 64, you can divide your RRIF withdrawals into seven additional years by registering the RRIF based on your spouse’s age.
You will reduce the annual minimum that must be withdrawn, conserve capital and allow the RRIF to continue to grow.
Another option is to use part of your RRSP funds to set up a small RRIF at age 65 to take advantage of tax credits that relate to the first $2,000 of qualifying pension income.
Transferring $14,000 from your RRSP to a RRIF at age 65 and then withdrawing $2,000 per year from 65 to 71 allows you to take that $14,000 virtually federal tax-free if you are in the lowest tax bracket in 2010 of $40,970 or less in taxable income.
There will be some tax costs if you have a higher marginal tax rate, but not as high as it would be otherwise.
Pension income splitting allows you to double up the RRIF withdrawal to $4,000 per year subject to certain conditions.
Because we are now entering the busy holiday season, it would be advisable to seek out professional advice as soon as possible to make this important transition a seamless one.
Larry Roche is a tax analyst with Farm Business Consultants Inc. Contact: fbc@fbc.cao
r 800-860-7011.
