solve question 6 taxation. formula is provided
#6) (5 Marks) Rodger R. R. Espee had the following incomes: Employment Income: Gross Salary 2016 2017 $55,000 $65,000 $11,000 2,544 955 2,000 $12,000 2,564 836 1,600 16,499 17.000 Less: Income Tax CPP RPP Total Deductions from Paycheque Property Income: Taxable Dividends (Eligible) Net Rental Income (Loss) Other Info: Pension Adjustment (T4) Unused RRSP Deduction Room $900 (1,000) $900 (1,500) $3,400 $3,000 2,000 REQUIRED: 4. Determine the maximum amount Rodger can contribute and deduct for 2017 to his registered retirement savings plan. Show all calculations. 2. Rodger's wife Joan contributed and deducted $2,000 in 2017 to her own RRSP. If Rodger contributed $4,000 to his own RRSP, what is the maximum amount which he can contribute and deduct in 2017 to a spousal RRSP for Joan? Show all calculations 3. If Rodger's made a contribution to his RASP on February 6, 2018, is he required to include this as a contribution for the 2017 tax year? 510 Chapter 10 Registered Retirement Savings Plans (RRSPs) Figure 10 - 2 RRSP Deduction Limit Formula - ITA 146(1) "RRSP deduction limit of a taxpayer for a taxation year means the amount determined by the formula A + B + R-C, where is the taxpayer's unused RRSP deduction room at the end of the preceding taxation year, is the amount, if any, by which (a) the lesser of the RRSP dollar limit for the year and 18% of the taxpayer's earned income for the preceding taxation year, exceeds the total of all amounts each of which is (b) the taxpayer's pension adjustment for the preceding taxation year in respect of an employer, or (c) a prescribed amount in respect of the taxpayer for the year, C is the taxpayer's net past service pension adjustment for the year, and R is the taxpayer's total pension adjustment reversal for the year. Example of relevant years Contributions made during the first 60 days of 2016 and undeducted contributions made in years prior to 2015 can be deducted against the RRSP Deduction Limit for 2015. Adding to the confusion is the fact that the RRSP Deduc- tion Limit for 2015 is based on Earned Income for the previous year (2014), as well as a Pension Adjustment that is calculated using 2014 figures. RRSP Deduction Limit The Basic Formula 10-41 At the heart of this retirement savings system is the RRSP Deduction Limit. It is this amount that determines the maximum contribution to an RRSP that can be deducted in a year. While this amount is sometimes referred to as the contribution limit, this is not an accurate description. The definition of RRSP Deduction Limit is found in ITA 146(1) and is reproduced in Figure 10-2. There are several technical terms included in this definition and they are high- lighted in Figure 10-2 with bold, italic type. Explanations for each term will be provided in the material which follows. 10-42 The RRSP Deduction Limit is neither a limit on contributions that can be made during the current year, nor a requirement that the contributions deducted in the current year be made in that year. A limited amount of non-deductible contributions can be made that are in excess of the RRSP Deduction Limit. Further, contributions made in earlier years that were not deducted in those years, or contributions made in the first 60 days of the following year, can be deducted under the RRSP Deduction Limit for the current year. 10-43. vidual to determine his maximum contribution for the current year during the early part of The reason for using an Earned Income figure from a previous year is to allow an indir that year. If the limit had been based on the current year's Earned Income, an individual would have to make contribut is carried forward and provides the basis for a deduction Retirement Saving And Omer Special com Arrangements Registered using PSP Example The RRSP Statement included return will mally be received dup the maximum RRSP deduction 2016 made on the basis of continued following year. There is not that the 2015 Unused RRSP Deduction Room As it is used in the Figure 1-2 ormula OSP Om under the formula for year POT to the crystal at the end of the preceding year is simply the called limited. As a result, taxpayer who lacks the funds dedo particular year does not lose the deduction applicate that year. The made during deducted in those years 10.45 Third This approach provides for carry forward of deduction is time 10-46. as follows: RASP Dollar Limit 10-7 The RRSP Dollar Limits defined in terms of the Money Purchase me that is spec. RRSP Deduction Limit, the RSP Dollarimit is generally defined as the Monte Purchase applicable to contributions de to RP because of the creyrar lax in the data and forme for the preceding year 10-48 Money Purchase Limits and the RSP Dollar Limits for year 2010 through 2016 am Year Money Purchase Limit RASP Dollar Limit 2010 22.450 22.000 2011 22.970 2012 23.620 2013 24 270 2014 24,930 22.450 22.970 23.820 24,270 2015 24.910 Indexed 2016 25,370 Earned Income 10-49 Earned Income for RRSP purposes is defined in ITA 146111. Note that Earned Income for child care expense purposes see Chapter 9) is different than Eamed Income for RRSP purposes. The basic idea underlying this definition of Earned Income for RRSP purposes is that the income to be included in this designation is earned by the individual, rather than received as the result of owning property. This means that interest, dividends, and capital gains are excluded from the definition 10-50. Surprisingly, however, net rental income is included, despite the fact that, for indi viduals, rental income is usually a form of property income. Another unusual feature of the definition is that it does not include either net or gross employment income in unaltered form. Rather, the net employment income component of Earned Income is a hybrid concept that excludes RPP contributions and is not used anywhere else in the determination of Net Income For Tax Purposes. Note that the deductible portion of CPP contributions payable because of self employed income are deducted under subdivisione [ITA 60/ell. Since this means that they do not affect the calculation of net business income, they are not included in the calcule- tion of earned income for RRSP purposes. 10-51. As found in ITA 146(1), the basic components of Earned Income are as follows: #6) (5 Marks) Rodger R. R. Espee had the following incomes: Employment Income: Gross Salary 2016 2017 $55,000 $65,000 $11,000 2,544 955 2,000 $12,000 2,564 836 1,600 16,499 17.000 Less: Income Tax CPP RPP Total Deductions from Paycheque Property Income: Taxable Dividends (Eligible) Net Rental Income (Loss) Other Info: Pension Adjustment (T4) Unused RRSP Deduction Room $900 (1,000) $900 (1,500) $3,400 $3,000 2,000 REQUIRED: 4. Determine the maximum amount Rodger can contribute and deduct for 2017 to his registered retirement savings plan. Show all calculations. 2. Rodger's wife Joan contributed and deducted $2,000 in 2017 to her own RRSP. If Rodger contributed $4,000 to his own RRSP, what is the maximum amount which he can contribute and deduct in 2017 to a spousal RRSP for Joan? Show all calculations 3. If Rodger's made a contribution to his RASP on February 6, 2018, is he required to include this as a contribution for the 2017 tax year? 510 Chapter 10 Registered Retirement Savings Plans (RRSPs) Figure 10 - 2 RRSP Deduction Limit Formula - ITA 146(1) "RRSP deduction limit of a taxpayer for a taxation year means the amount determined by the formula A + B + R-C, where is the taxpayer's unused RRSP deduction room at the end of the preceding taxation year, is the amount, if any, by which (a) the lesser of the RRSP dollar limit for the year and 18% of the taxpayer's earned income for the preceding taxation year, exceeds the total of all amounts each of which is (b) the taxpayer's pension adjustment for the preceding taxation year in respect of an employer, or (c) a prescribed amount in respect of the taxpayer for the year, C is the taxpayer's net past service pension adjustment for the year, and R is the taxpayer's total pension adjustment reversal for the year. Example of relevant years Contributions made during the first 60 days of 2016 and undeducted contributions made in years prior to 2015 can be deducted against the RRSP Deduction Limit for 2015. Adding to the confusion is the fact that the RRSP Deduc- tion Limit for 2015 is based on Earned Income for the previous year (2014), as well as a Pension Adjustment that is calculated using 2014 figures. RRSP Deduction Limit The Basic Formula 10-41 At the heart of this retirement savings system is the RRSP Deduction Limit. It is this amount that determines the maximum contribution to an RRSP that can be deducted in a year. While this amount is sometimes referred to as the contribution limit, this is not an accurate description. The definition of RRSP Deduction Limit is found in ITA 146(1) and is reproduced in Figure 10-2. There are several technical terms included in this definition and they are high- lighted in Figure 10-2 with bold, italic type. Explanations for each term will be provided in the material which follows. 10-42 The RRSP Deduction Limit is neither a limit on contributions that can be made during the current year, nor a requirement that the contributions deducted in the current year be made in that year. A limited amount of non-deductible contributions can be made that are in excess of the RRSP Deduction Limit. Further, contributions made in earlier years that were not deducted in those years, or contributions made in the first 60 days of the following year, can be deducted under the RRSP Deduction Limit for the current year. 10-43. vidual to determine his maximum contribution for the current year during the early part of The reason for using an Earned Income figure from a previous year is to allow an indir that year. If the limit had been based on the current year's Earned Income, an individual would have to make contribut is carried forward and provides the basis for a deduction Retirement Saving And Omer Special com Arrangements Registered using PSP Example The RRSP Statement included return will mally be received dup the maximum RRSP deduction 2016 made on the basis of continued following year. There is not that the 2015 Unused RRSP Deduction Room As it is used in the Figure 1-2 ormula OSP Om under the formula for year POT to the crystal at the end of the preceding year is simply the called limited. As a result, taxpayer who lacks the funds dedo particular year does not lose the deduction applicate that year. The made during deducted in those years 10.45 Third This approach provides for carry forward of deduction is time 10-46. as follows: RASP Dollar Limit 10-7 The RRSP Dollar Limits defined in terms of the Money Purchase me that is spec. RRSP Deduction Limit, the RSP Dollarimit is generally defined as the Monte Purchase applicable to contributions de to RP because of the creyrar lax in the data and forme for the preceding year 10-48 Money Purchase Limits and the RSP Dollar Limits for year 2010 through 2016 am Year Money Purchase Limit RASP Dollar Limit 2010 22.450 22.000 2011 22.970 2012 23.620 2013 24 270 2014 24,930 22.450 22.970 23.820 24,270 2015 24.910 Indexed 2016 25,370 Earned Income 10-49 Earned Income for RRSP purposes is defined in ITA 146111. Note that Earned Income for child care expense purposes see Chapter 9) is different than Eamed Income for RRSP purposes. The basic idea underlying this definition of Earned Income for RRSP purposes is that the income to be included in this designation is earned by the individual, rather than received as the result of owning property. This means that interest, dividends, and capital gains are excluded from the definition 10-50. Surprisingly, however, net rental income is included, despite the fact that, for indi viduals, rental income is usually a form of property income. Another unusual feature of the definition is that it does not include either net or gross employment income in unaltered form. Rather, the net employment income component of Earned Income is a hybrid concept that excludes RPP contributions and is not used anywhere else in the determination of Net Income For Tax Purposes. Note that the deductible portion of CPP contributions payable because of self employed income are deducted under subdivisione [ITA 60/ell. Since this means that they do not affect the calculation of net business income, they are not included in the calcule- tion of earned income for RRSP purposes. 10-51. As found in ITA 146(1), the basic components of Earned Income are as follows
