CANFORGEN on Pay and PIL

[Pusser]

I retire this July with 35 + years. I am hoping that this is not going to screw things up for me with regards to placing some of my Severance into a RRSP and using some to pay off debts.

If you're retiring this July, you will be out before the election period even begins, so there this policy will not affect you.

 

[Pusser]

Wow! Interesting reading.

Let's see if I understand. Let's assume this severance pay is called a retirement payout and is treated as such by tax law, even though my DH is not retired or retiring any time soon. We won't know that for sure until we investigate some more.

My DH has 21 years of service, is a WO and has no plans to retire.

Scenario ONE: Under the new severance rules he can take his severance pay now as a WO and roll it into an RRSP. No tax implications until the day we withdraw the money, which won't be until he's retired and likely in his 70s. As far as I can see he has lots of room between his RRSP and TFSA to do this. It would be just like a few other times where we rolled monies from different payouts straight into RRSPs ( I think we did this a few times when he was IR). However,  by this fall we must elect to do so by submitting paper work.

SCENARIO TWO:
OR we can wait until he actually retires and take the exact same chunk of cash (since it appears that the payout will based on what he makes NOW not on his best years) and do the exact same thing, roll it over and no tax implications. 

If this is all correct then why wouldn't we take the payout now and make interest on the money by investing it for the next few years. Assuming he retires in 4 years we will still have made money for the 4 years on the payout (assuming our investments make money- ha ha!).  This seems a better idea.

Of course, no one is sure yet of the details. So maybe the payout will be based on your pay level on the day you retire if you wait (higher amount of payout due to incentives, promotions and raises in the remaining years)  OR maybe the pay out won't be deemed to be a retirement payout for tax purposes and you won't be able to just roll it over into an RRSP, unless you do actually retire this year. Interesting!

HAve a got that straight??? Or are there things we need to consider since he joined before 1996?

You can only put after-tax dollars into a TFSA.  In other words, you cannot shelter the payout by putting it into a TFSA.  It will be taxed at source.  However, you will not be taxed on any of the income generated in future by that investment.

The CANFORGEN and the Q&A Page (link in an earlier post) are both pretty clear that taking the payout now will be at your current pay level, but at retirement will be at your retirement pay level.  So yes, waiting will most likely see you paid out at a higher level.  However, the question now becomes whether you can make more money by taking it and investing it now, even though it's paid out at a lower rate, than by waiting to receive it at a higher rate upon retirement.  My guess is you can make more money by taking it now and investing it, but I still have some numbers to crunch.

 

[liams mom]

Thanks Pusser!

You are right about the TFSA. So we don't  have nearly enough room in his RRSPs.  HOpefully we can split it between the room he has available and the room I have available.

Our investments are very slow and steady in nature, since we are both conservative in our finiancial dealings. I doubt we will make more by investing it over the next 4 or 5 years than he could make through improvements to salary if we wait until release.

Definitely have to crunch the numbers! Too bad there is no sure fire way to know when promotions might be forthcoming!

 

[dapaterson]

While we are talking RRSPs, my wife is now retired, without a pension.  If I use the severance package to max out her lifetime RRSP room, how long does it have to stay in there before I can remove it, paying her nominal tax rate vice my somewhat larger one?

If you have RRSP room, you can deposit into a spousal RRSP - the money is hers, but you get the tax relief and it's your RRSP room that is used.  I believe attribution rules require the funds remain in the RRSP for at least 3 years before she can withdraw it and have it taxed in her hands instead of in yours.

 

[Journeyman]

Thanks for discrediting my experience.  For absolutely no reason. 

Au contraire, I was simply indicating that you have never commanded junior soldiers, let alone having counselled them on inadequate life planning. 
It gets back to that whole "opinion" versus "informed opinion" thing.

 

[jollyjacktar]

If you have RRSP room, you can deposit into a spousal RRSP - the money is hers, but you get the tax relief and it's your RRSP room that is used.  I believe attribution rules require the funds remain in the RRSP for at least 3 years before she can withdraw it and have it taxed in her hands instead of in yours.

Slightly confused here...  I thought that someone posted the severance going into an RRSP would not give you any tax relief?

 

[meni0n]

It also states that we have until mid march 2013 to make our choice but the calculation papers won't be sent until the fall. Does that mean we have to wait for these papers to arrive or do I just go to the OR and say hey this is what I want to do with my severance?

 

[dapaterson]

Slightly confused here...  I thought that someone posted the severance going into an RRSP would not give you any tax relief?

No.  If you take the severance into your hands immediately and do not put it directly into an RRSP you'll have tax withheld at source.  If you roll it directly into an RRSP, you'll have the following income:

Regular Salary + Severance - RRSP contributions.  Since amount of severance = amount of RRSP contributions, the net effect is zero.  SO while you won't get a massive tax return at the end of the year, you will also not be paying taxes on the RRSP until you withdraw the amounts.

Consult a financial planner for help.  Do not rely on random guys on the internet (including me).

 

[jollyjacktar]

No.  If you take the severance into your hands immediately and do not put it directly into an RRSP you'll have tax withheld at source.  If you roll it directly into an RRSP, you'll have the following income:

Regular Salary + Severance - RRSP contributions.  Since amount of severance = amount of RRSP contributions, the net effect is zero.  SO while you won't get a massive tax return at the end of the year, you will also not be paying taxes on the RRSP until you withdraw the amounts.

Consult a financial planner for help.  Do not rely on random guys on the internet (including me).

Yeah, that's me misunderstanding.  Has been a loooong day at work and the mind is not as sharp as it could be.  I was thinking of tax relief re: getting some dough back on return (back end) vs getting the severance free of raping on the front end.

 

[armyvern]

Whhhhoooo! New chaps ... and boots.  ;D

 

[GAP]

Whhhhoooo! New chaps ... and boots.  ;D

:rofl:

 

[Journeyman]

Whhhhoooo! New chaps ... and boots.  ;D

 

[Eye In The Sky]

It also states that we have until mid march 2013 to make our choice but the calculation papers won't be sent until the fall. Does that mean we have to wait for these papers to arrive or do I just go to the OR and say hey this is what I want to do with my severance?

I believe you have to wait for the papers and then the election period between mid Dec/mid Mar;  I am not expecting to see any actual $ for this until FY 13/14.

 

[PPCLI Guy]

If you have RRSP room, you can deposit into a spousal RRSP - the money is hers, but you get the tax relief and it's your RRSP room that is used.  I believe attribution rules require the funds remain in the RRSP for at least 3 years before she can withdraw it and have it taxed in her hands instead of in yours.

Merci!

 

[ARMY_101]

Just curious, are there any standing orders re: posting CANFORGENS in public spaces?  On the one hand they're marked unclassified, yet on the other the CF itself does not post CANFORGENS on its public site (only DIN).

CANFORGEN 136/06 more deals with posting photos and information of OPSEC and PERSEC online, not orders.

Is there anything laying out whether those on the DIN can repost this information?

 

[aesop081]

yet on the other the CF itself does not post CANFORGENS on its public site (only DIN).

The information in the CANFORGEN discussed here is publicly available here:

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

Other CANFORGENs are routinely available on official DND webpages, such as here for example:

http://www.cfga.forces.gc.ca/can/canforgen-127-08-eng.asp

https://www.cfpsa.com/en/psp/messes/docs/CANFORGEN%20191e.pdf

http://www.rmc.ca/aca/ams-sma/pro/canforgen-142-08-eng.asp

 

[dapaterson]

The new CBI, 204.40, has been posted.  It's on the internet at: http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/pub/cbi-dra/204-eng.asp


The ten pages of the CBI, taken from the DWAN PDF and including the election form) is in the attached PDF.

 

[charlesm]

For us reservists, I guess it may be a good thing that the pension office has taken so long to not even calculate our buyback part of our pensions. Now I can get my RFRG put it into and RRSP and then use it to buyback my pension!!

This almost seems that it was planned!!

 

[fraserdw]

Never accuse us of planning!!!

 

[Sub_Guy]

The new CBI, 204.40, has been posted.  It's on the internet at: http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/pub/cbi-dra/204-eng.asp

I would have thought they would have just updated to 2012, the pay rates at that link are as of March 2011.  There is still the 2012 adjustment to take into account.  Nevermind. 

http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/pay-sol/pr-sol/index-eng.asp