Due to the recent stock market meltdown, a number of special rules were introduced regarding the tax treatment of RRIF and RRSPs.
- In 2008, a 25% reduction in the minimum required RRIF withdrawal amounts was announced. Because the announcement came so late in the year, those who had already made withdrawals from their RRIFs were allowed to re-contribute up to 25% of the minimum required withdrawal amount, as long as the re-contribution was made by April 14, 2009. Although it is now too late to make RRIF re-contributions, taxpayers may still be able to benefit if they made the re-contributions, but failed to deduct them on their tax returns. The tax return forms mailed to some seniors did not have a spot (line 232) to deduct the re-contributed amounts, so some taxpayers may well have failed to deduct the re-contribution. However, as long as the re-contribution was made on time, it can still be deducted. All it takes is requesting an adjustment to the 2008 tax return.
- In some cases, the estates of taxpayers who died in 2008 got caught in a trap. When an RRSP or RRIF annuitant dies, they are deemed to have cashed in their RRSPs and RRIFs, so the fair market value of the plan at the date of death is included in taxable income on the date of death return. However, the RRSP or RRIF is usually not actually redeemed until some months after the date of death. Normally, this means that any increase in value after the date of death is reported on a T3 Trust return of the estate. However, if there is a decrease in value after the date of death, there is normally no way to deduct the difference between the value at the date of death and the amount actually received when the plan cashed in.
Given the general decline in value of investment portfolios due to the stock market performance in 2008 and 2009, a number of estates are in the position of having to pay income tax on money that was never actually received. In order to correct this problem, the 2009 Budget proposes to allow these post-death decreases in the value of RRSPs and RRIFs which occur for redemptions occurring on or after January 1, 2009 to be carried back and applied against income in the year of death. This carry-back is usually only allowed for one year, that is, when the redemption is made in the year following the year of death, however, CRA may allow the carry-back for more than one year on a case by case basis.
Talk to your accountant or advisor regarding the special rules discussed above.