CANFORGEN on Pay and PIL

[Occam]

NavyShooter, if I may say so, I think you might want to talk to a SISIP financial planner before committing to that course of action.

Since you're at the dying days of your mortgage, most of your payments are going towards principal and very little towards interest.  Add to that the fact that mortgage money is the cheapest money you can get.

I think throwing away $11,000 to the taxman in order to save yourself very little in mortgage interest is not very wise.  If you have the RRSP room, and you invested the $27.5K in moderate risk investment vehicles, I'd bet that you'd be way further ahead when all is said and done.

I could be wrong, but I don't think so in this case.  Why aren't people rushing to get professional financial advice on this?

 

[Wookilar]

I did as Occam suggests and took this to SISIP.

We are in a similar situation, this could make a huge dent on my mortgage, but given the current interest rates (and near to mid-future rates), I can stand to make a lot more investment wise.

Instead of sticking it into an RRSP and letting it sit there for the next 15 years +, one of the things to consider is start drawing $5k or so a year, right away.

Yes, you will not "make" as much. However, you save the hit on income tax when you roll into and RRSP and you will take very little hit on an additional $5k income next year and can then use that for whatever the heck you want, including your mortgage.

It's not so much about maximizing your return, but minimizing the tax hit.

Talk to SISIP, they're free, and in my experience at least, pretty darn good at what they do.

Wook

 

[rnkelly]

Excuse my ignorance but if you elect to defer your severance to you're retirement does the severance get calculated on your salary at that time or would it be your salary just before 1 Mar 2012?  Does it get indexed?

 

[dapaterson]

Excuse my ignorance but if you elect to defer your severance to you're retirement does the severance get calculated on your salary at that time or would it be your salary just before 1 Mar 2012?  Does it get indexed?

Per CBI 204.40(8 ), if you elect to take severance on your retirement it will be ccalculated using your rate of pay on your last day before your release.


EDIT: Because (8 ) needs to be typed instead of (8)

 

[Occam]

Excuse my ignorance but if you elect to defer your severance to you're retirement does the severance get calculated on your salary at that time or would it be your salary just before 1 Mar 2012?  Does it get indexed?

From http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/sg-ig/sg-ig/pi-as-eng.asp

Q9.  What rate of pay will be used to determine the severance benefit upon release?

A9.  Should a CF member elect to receive a severance benefit upon release, then the monthly rate of pay and pay increment for the member’s substantive rank in effect on the date of release or transfer, from the Regular Force or Primary Reserve Force, will be used to calculate the final severance benefit.

Indexing doesn't apply to severance at all - indexing applies to your CFSA pension.

edit:  DAP beat me to it, but there is lots of other good information at that link so I'll post it anyways.

 

[CountDC]

Reading back a few posts and Wooks post made me think (just a little bit) and well it is Friday afternoon so I am a bit lazy.

Is it possible for me to roll this into a spousal RSP and then for her to draw the $5k starting right away?  She would take a lot less of a hit on the taxes than I would as she doesn't currently work and doesn't plan to in the near future.

 

[dapaterson]

Reading back a few posts and Wooks post made me think (just a little bit) and well it is Friday afternoon so I am a bit lazy.

Is it possible for me to roll this into a spousal RSP and then for her to draw the $5k starting right away?  She would take a lot less of a hit on the taxes than I would as she doesn't currently work and doesn't plan to in the near future.

Short answer:  No.

Long answer:  You can roll it into a spousal RRSP.  However, if she withdraws it too soon (I believe the cut-off is three years, but I'm not sure) it's seen as a tax dodge, and it will be taxed in your hands, not hers.

Check the CRA website for rules on withdrawing funds from spousal RRSPs, or consult your financial advisor.

EDIT:  See http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/wthdrwls/spsl-eng.html for a start


That said:  If she has other RRSP amounts, she could withdraw those instead and get the same effect.

 

[CountDC]

it's seen as a tax dodge, and it will be taxed in your hands, not hers.

Damn - my uncle must have tipped them off to me.  He was one of those mean collectors at CRA  ;D

 

[Stoker]

So we were briefed today that the "severance" or "RFRG" buyout will be considered salary and taxed accordingly. We do not have the option to roll it over to a RRSP to avoid the taxman. We apparently have the option request to split some of the income to another year in order to not be dinged so much on taxes. Anyone hear anything similar.

 

[turretmonster]

Do Reg F pers get to roll it into a RRSP or do they get dinged with the additional income tax as well?
TM

 

[Stoker]

Do Reg F pers get to roll it into a RRSP or do they get dinged with the additional income tax as well?
TM

As far as I know its both reg and reserve. Its from what I can tell that its not really a severance anymore but a buyout, and thus considered income.

 

[dapaterson]

So we were briefed today that the "severance" or "RFRG" buyout will be considered salary and taxed accordingly. We do not have the option to roll it over to a RRSP to avoid the taxman. We apparently have the option request to split some of the income to another year in order to not be dinged so much on taxes. Anyone hear anything similar.

If cashed out it is not a retiring allowance so iyou can't toll it over almost automatically.  However, if you have unused contribution room I believe you can do a limited roll over.  More to follow in a few days, once I'm at my desk and can do some research.

 

[turretmonster]

Nice.... Luckily I can contribute an amount equal to my "buyout" into my RRSP, negate the additional income tax, and plunk the additional income into my RRSPs the year after. Suck factor 10 as I had deliberately left room in my RRSP for this severance package.
Plse let us know Mr Patterson

 

[Stoker]

If cashed out it is not a retiring allowance so iyou can't toll it over almost automatically.  However, if you have unused contribution room I believe you can do a limited roll over.  More to follow in a few days, once I'm at my desk and can do some research.

Thank, I did call CRA yesterday and talked to the RRSP people and they told me it could be done. I brought it up the chain but we were told that's not so at all and that is being briefed to the chief clerks in the area. I was hoping to move it into a RRSP and roll it over to my buyback as i'm sure many people want to do. Whatever you can find out would be appreciated.

 

[turretmonster]

http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/sg-ig/sg-ig/pi-as-eng.asp

Q11. Will the payment in lieu be taxable?

A11. The payment in lieu of a severance benefit is considered employment income. As such, the one time payment will be subject to Income Tax and will be reported as income on the T4 (Relevé 1 in Quebec).

If a CF member has unused RRSP room, they can request for a reduction of Income Tax at source. Please consult the Canada Revenue Agency (CRA) for further details; residents of Quebec should consult Revenu Quebec (MRQ).


I know there must be a form to fill out for this reduction of Income tax at the source somewhere along with limits allowed to be dropped into a RRSP. 

TM

 

[Pusser]

http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/sg-ig/sg-ig/pi-as-eng.asp

Q11. Will the payment in lieu be taxable?

A11. The payment in lieu of a severance benefit is considered employment income. As such, the one time payment will be subject to Income Tax and will be reported as income on the T4 (Relevé 1 in Quebec).

If a CF member has unused RRSP room, they can request for a reduction of Income Tax at source. Please consult the Canada Revenue Agency (CRA) for further details; residents of Quebec should consult Revenu Quebec (MRQ).


I know there must be a form to fill out for this reduction of Income tax at the source somewhere along with limits allowed to be dropped into a RRSP. 

TM

The limit of what you're allowed to put into an RRSP will be your unused RRSP contribution room - as noted on your 2011 income tax statement (and everyone before that).

 

[dapaterson]

Thanks, Turret Monster, for saving me the time to find that FAQ.

The actual CRA paperwork to complete?  I'll do some hunting next week...

 

[Occam]

The actual CRA paperwork to complete?  I'll do some hunting next week...

TD2?  That's what I used to roll my severance into RRSPs when I pulled the pin last Sept...

 

[dapaterson]

TD2?  That's what I used to roll my severance into RRSPs when I pulled the pin last Sept...

Sounds right.

One thing to remember:  with close to 100k people possibly cashing out in a small window it will mean the process will be delayed - even if they bring in extra staff to review applications, it will still be many, many months between sending in an election and getting the cash in hand. 

 

[Nfld Sapper]

Sounds right.

One thing to remember:  with close to 100k people possibly cashing out in a small window it will mean the process will be delayed - even if they bring in extra staff to review applications, it will still be many, many months between sending in an election and getting the cash in hand.

Sounds like the P.Res pension......

;D