Special Report: Changes to RRIF Payouts Could Reduce Taxes

Registered retirement income funds or RRIFs and the requirement to withdraw certain minimums from them every year, are also of particular concern to many retirees given the current market conditions. No one wants to be generating losses because of the financial meltdown if they can afford to wait it out. The RRIF withdrawal rules do not provide for such an option.

In view of this, the Government is proposing RRIF annuitants be allowed to reduce their minimum withdrawal by 25% for the 2008 tax year.

For example, if an individual would be required to make a $20,000 withdrawal under the current rules then that minimum amount would be reduced to $15,000 under the new rules.

Taxpayers who have already withdrawn more than the reduced minimum amount would be allowed to re-contribute the excess amount (up to $5,000 in this example) back into the RRIF. The deadline for recontribution is the later of March 29, 2009 and 30 days after the proposed legislation is passed. Taxpayers making these recontributions will be allowed to claim a deduction for the amount recontributed on their 2008 returns.

Therefore significant milestones for the month of March 2009 are the following:

The December 15 instalment payment should of course be reviewed in light of these changes and reductions in income in 2008 overall. It may not be necessary for seniors to make that December 15 instalment; avoiding further erosion in retirement savings values caused by withdrawals in the current market.

In addition, as reported by example in the last edition of this publication, a more important opportunity resides in the ability to make ìin kindî withdrawals, thereby allowing seniors to avoid locking in losses on their equity values and in fact providing them with the opportunity to earn tax advantaged gains on the shares now held outside the RRIFs. The November 27, 2008 Economic Statement underscores this:

"The income tax rules, in fact, permit 'in-kind' asset transfers to meet the minimum withdrawal requirementsóthey do not require the sale of assets. The in-kind distribution of assets allows individuals to meet the RRIF minimum withdrawal requirements and keep their assets intact, so that the assets may benefit from future market growth."

Advisors and their clients should discuss these opportunities immediately.