The Future of Your RRSP

Many Canadian taxpayers have been able to build substantial RRSPs that will one day supplement their pensions and other sources of retirement income. Since the inception of this strategic retirement savings program, the RRSP has become an attractive investment for many taxpayers. An RRSP offers the contributor both immediate and long-term benefits:

  • a reduction of personal income tax for the year in which the contribution is made
  • the security of knowing that these savings will help finance your future retirement but can also be accessed in the event of an emergency
  • the deferral of taxes on the income and capital gains on the RRSP investments that accrue within the plan, and
  • substantial savings in taxes if your income (and marginal tax rate) is lower at the time you make withdrawals for your retirement.

Withdrawals from RRSPs

Generally, you can withdraw funds from an RRSP at any time and the tax consequences are very straightforward — the amount of your withdrawal is fully taxable in that taxation year. As these savings are for your retirement, withdrawals should only be made in the case of an emergency or in a year in which your income is particularly low.

It is very important to get tax advice before you consider withdrawing RRSP funds prior to the maturing of your plan.

However, the lifespan of the RRSP does not continue beyond the year in which you turn age 69. In that year, the RRSP is said to have matured. That is, you must terminate your RRSP in the year in which you reach age 69.

You do have options for winding up the RRSP. Besides a lump sum withdrawal (which would be subject to tax in that year), you can purchase a life annuity or fixed term annuity and pay taxes as the payments are received. However, annuities lack flexibility and the rates of return may not be competitive with other investments. Your other alternative is to transfer the funds on a tax-free basis to a Registered Retirement Income Fund (RRIF).

Note that if you do not select one of these options by the end of the year in which you turn 69, the RRSP is automatically deregistered. For tax purposes, this deregistration is treated as if it is a lump sum withdrawal so a high portion of the funds would be taxed at the maximum tax rate.

Registered Retirement Income Fund (RRIF)

A RRIF is managed in much the same manner as an RRSP; however, deductible contributions cannot be made to a RRIF. For this reason, there is usually no advantage to establishing a RRIF prior to age 69.

Once inside the RRIF, the assets can be managed by the trustee of the plan according to the taxpayer’s directions. The wide range of qualifying investments that can be acquired in a RRIF may make it possible to achieve a better rate of return than those available through the purchase of annuities.

The RRIF offers some degree of flexibility as there is no maximum to the amount that you can withdraw in a year. However, it is important to note that you must withdraw a minimum from your RRIF each year. The Income Tax Act sets out the percentage of the fair market value of the RRIF assets that must be withdrawn (and are subject to tax) each year, beginning in the year following the year that the RRIF is established.

If the RRIF is established at age 69, the percentage starts at 4.76% and increases until it reaches 20% at age 94. At age 94, it stays at the 20% level until such time that you die.

What Happens on Death?

Whether you currently have an RRSP or have transferred your funds to a RRIF, make sure you designate a beneficiary. Amounts received by your spouse or financially dependent children will be taxable in their hands; however, the tax on the receipt of these amounts may be eligible for deferral if they transfer the funds to an RRSP or annuity. If you do not designate a beneficiary, your estate will be taxable on the fair market value of your plan at the time of your death unless your legal representative jointly elects with the spouse/partner or financially dependent child to transfer the amount to him or her in which case it would be taxable in his or her hands.

You also need to revisit your assignment of beneficiaries periodically to reflect changes in your life such as separation or divorce, the birth of a child, or the death of a beneficiary.

An Example

Let’s look at an example. A taxpayer who was in the top tax bracket began making annual RRSP contributions of $10,000 on January 1, 1983. Throughout the years 1983 to 2002, he received a 6% return on his RRSP investments.

By January 1, 2002, the RRSP vehicle had allowed him to defer almost $100,000 in income taxes while his RRSP portfolio grew to an aggregate principal and interest value of $367,855.

In 2002, he reached age 69 and as the RRSP must be terminated before December 31st of the year in which you reach age 69, he transferred the funds to a RRIF. Unfortunately he met an early demise in 2003.

Taking into account the additional interest of $22,071 that his investments would earn in 2002, the value of the RRIF at December 31, 2002 would be $389,926. The RRIF would have provided a minimum payment of $18,560 for 2003. If this payment had been made, the remaining balance of the RRIF would be $371,366.

The tax on this remaining amount, depending on the tax jurisdiction, would be approximately 45% of the RRIF face value, or $167,115. (The lowest tax rate is in Alberta and the highest in Newfoundland.)

How could he have protected his estate from this substantial tax liability on death?

RRIF Transfers on Death When a RRIF annuitant dies, the spouse or common-law partner can become the annuitant of the RRIF on a tax-free basis. There is also a rollover if the RRIF assets are left to a financially dependent child or grandchild.

In essence, the beneficiary may defer taxes on the amount by transferring it to an issuer to buy an annuity that provides payments until the child reaches the age of 18.

Of course, any payments received from the plan or annuity are subject to tax in the hands of the beneficiary. Also of note is that for children and grandchildren that are financially dependent by reason of a mental or physical infirmity, the amount can also be transferred to an RRSP or other eligible annuities regardless of their age. In this case, you should also consider the impact of the annuity on any social assistance that the dependant receives.

If the assets are left to any other beneficiary, the fair market value of the assets will have to be added to the deceased taxpayer’s income in the year of death. This could result in a very large tax liability. In some instances, the taxpayer will purchase a life insurance policy to provide the funds to pay this tax liability at death.

Consult Your Professional Advisors. Be sure to consult with your chartered accountant and your lawyer before making decisions about your estate planning or signing documents. Your professional advisors can help you plan for your retirement years secure in the knowledge that you have addressed the tax liability issues to better provide for your beneficiaries.

Protecting Your Cards

T he swipe of a plastic card to make purchases and withdrawals and complete bank transactions has become commonplace — and increasingly so has debit card theft and fraud.

Debit card fraud more frequently occurs on weekends, as this provides a window of opportunity for the thief to withdraw a maximum amount before detection. Fraudulent activity involves lost, stolen or counterfeit cards as well as skimming and other types of fraud.

While your daily withdrawal and debit card purchase limits afford some protection, a substantial amount may be accessed before you realize that your card has been compromised. In a typical scenario, the thieves start by visiting an ATM to determine your profile. The financial data is printed or simply viewed on the screen. They transfer funds from your credit card to your bank account or withdraw funds from your bank accounts or your credit card to the maximum daily amount. As your daily cash withdrawal and debit card purchase limits may be relatively high, the thieves could access thousands of dollars over the course of a weekend, and even more on a holiday weekend. If your account balances are insufficient for the withdrawals, the thieves can transfer funds from your line of credit or make a fraudulent deposit to bring the account balance up to your daily limit. In the Event of Theft Many times the victims will not be aware of their losses until they attempt to withdraw funds or make a debit card purchase and the transaction is rejected.

In the event you are a victim of debit card fraud:

  • Immediately contact the police and the financial institution that issued your debit card. The issuer will quickly disable your debit card so the thieves can no longer access your accounts.
  • Go to your local branch to file a written report. Your financial institution will work with its own fraud investigation team and the police to determine the extent and location of the fraud.
  • Be prepared to provide details about your recent debit card use as well as the slips for all recent transactions. Financial institutions work closely with their clients to determine the nature of the loss. They are as interested as you are in sorting out the problems associated with the theft.

Although not all financial institutions have the same policy or follow the same procedures when handling debit card theft, generally they will work diligently to:

  • issue a new debit card for which you will select a new PIN
  • review security on any credit cards that they have issued to you
  • reimburse you for losses once the fraud has been investigated
  • assist you in honouring outstanding cheques that may otherwise be returned because of insufficient funds
  • determine which accounts have not been affected so you will be able to obtain funds and write cheques

You may be asked to sign an affidavit that you and your immediate family members were not responsible for the withdrawals and/or purchases made on your compromised card. This is a common practice and should not be construed as a personal slight.

An Ounce of Prevention

Financial institutions are constantly enhancing their transaction monitoring capabilities to protect their customers from fraud as well as minimize their risks. They are also developing and testing improved verification methods such as fingerprinting, retinal eye scanners, and computerized signature cards.

However, the users themselves must also take responsibility for safeguarding their debit cards.

Although not all of these procedures are relevant to stopping debit card theft that is perpetrated by organized crime, they can help you protect the integrity of your debit card:

  • Protect your debit card as you would cash. Sign the card when you receive it and never write your PIN number on your debit card or anywhere else. Instead, always commit your PIN number to memory.
  • Select a PIN that is not easily tied to your identity. In other words, do not use numbers that are based on your Social Insurance Number, telephone number, birth date or other data that may be accessed or found in your wallet.
  • Make debit card purchases at merchants you know. For other purchases, use a credit card.
  • When making a purchase, pay attention that your card is not swiped more than once through the machine.
  • Do not give your debit card and PIN to anyone, not even a family member.
  • When you are inputting your PIN, be aware of any loiterers who may be watching. Block the view of the keypad to make it difficult for a person or a hidden camera to see you entering your PIN.
  • Consider reducing your daily cash withdrawal limit and the number of accounts linked to your debit card.
  • Change your PIN on a regular basis. A Loss Contingency Plan In this increasingly plastic economy, be prepared to deal with an emergency should your debit or credit cards be compromised.
  • Read your card agreements and make sure you understand the terms and provisions. In the event of the theft of your debit card, you may be liable for any losses if it is established that you did not take proper steps to protect your debit card and PIN.
  • Know what to do if you discover fraudulent transactions have been made with your debit or credit card. Ask your card issuers to provide you with instructions and emergency contact numbers.
  • Keep a record of your debit and credit card numbers in a safe place, along with the emergency telephone numbers, local and 800, for each issuer. If a card is stolen or lost, call the issuing company immediately.
  • Consider registering with a service agency to which you can report the loss or theft of your cards and they do the job of immediately contacting all the card issuers on your behalf.
  • Keep track of your debit and credit card usage. Make sure you take your slips and receipts with you after completing a transaction. Do not leave them behind or discard them carelessly.
  • Reconcile your receipts and statements on a regular basis. Check your card agreements to determine the time period in which you must report any discrepancies.
  • If you no longer need the slips and receipts, make sure you destroy them before throwing them in the trash. Protect your cards and PINs as if they were cash because in the wrong hands, they really are cash, your cash.


Defrag for Optimum Performance

Is your computer running slowly?

Does it seem to take longer to save a file? The fix may be just a few clicks away.

Perhaps it is time to defrag your system. Defragmentation is a process by which your operating system or a special software program defragments your hard drive so that your computer runs faster and more efficiently.


Fragmentation occurs on all computer systems. When data is stored on the hard drive, the location of every piece of data on every file is maintained in the file allocation table (FAT). When you need a file, the FAT is called upon to provide the address where that data is stored.

Ideally, everything in a particular file should be stored in one compartment, similar to a kitchen utensil drawer where knives, forks and spoons are each stored in their own section.

However, a computer stores data in every nook and cranny available to make optimum use of the available hard drive space. If you are working on a file that is too large to fit into one of the pockets, the data for that file may be split into many pieces and scattered over several sectors of the hard drive.

Each piece of data for that file is allocated a different FAT address. When the file is recalled or stored, it takes more time for the system to gather all of the fragments of data and put it all together. When data files are constantly written, updated, rewritten and updated again, fragmentation increases.

When a volume (hard drive) contains a lot of fragmented files and folders, Windows takes longer to gain access to them because it requires several additional disk drive reads to collect the various pieces. Creating new files and folders also takes longer because the free space available on the volume is scattered. Windows must then save new files and folders to various locations on the volume.

Computers that are used for lengthy time periods and servers that are used by many users may have as many as 65,000 different pieces of fragmented data. This can severely affect recapture and storage time.

Disk Defragmenter

The Windows operating system includes a small disk defragmenter utility program. To access and run this tool, go to Start > Programs > Accessories >System Tools and then select Disk Defragmenter.

Alternatively, you can open the desktop icon My Computer, right click on the hard drive, select Properties, then the tab Tools and click on Defragment Now.

The defragmentation process moves the pieces of each file or folder to one location on the hard drive so that each occupies a single, contiguous space on the disk drive.

After you have run the disk defragmenter, your system can access your files and folders faster and save new ones more efficiently. By consolidating your files and folders, the disk defragmenter also consolidates your free space, making it less likely that new files will be fragmented. Just as you might place your favourite coffee cup at the front of the cupboard, defragging will place the files that are used most often near the start of the read process.

Is it Time to Defrag?

To determine whether your volume needs to be defragged, go to Disk Defragmenter and click on Analyze. After a short time, a message will appear saying whether or not your volume needs to be defragmented. If your system needs to be defragged, simply click on Defragment.

The Analyze utility will also show you many fragmented files and folders are saved on the volume if you click on View Report.

It is important to disable all anti virus and screensaver programs before you defrag as these will interfere with the defragmentation process. You should also delete temporary files and Internet cache before you begin.

The amount of time that defragmentation takes depends on several factors, including the size of your volume, the number of files and folders, the amount of fragmentation, and the available system resources.

Generally the process can take a few hours so this is maintenance that is best done at the end of the day when you no longer need your computer.

Defragmentation Programs

As the built-in defragmenter that comes with Windows must be run manually on one drive at a time, corporate users may wish to purchase a full-function defragmentation program to manage their system’s storage efficiency and performance.

These utility programs do the job faster as well as offer additional features that can optimize system performance. They are also recommended for servers.

Some of the features of these utility programs include the ability to:

  • set the program to run automatically and work on all drives on your system
  • run without interrupting your use of the computer
  • defrag system files that the built-in defragmentation utility cannot handle
  • determine when the system should be defragged
  • provide background and prioritized defragging
  • report hard drive errors and carry out needed repairs
  • sort and place by date or file names,


  • analyze other problems in your operating system.

Fragmentation can have a severe impact on a computer’s performance.

Whether you use the built-in defragmenter or install and use a special utility, periodic defragmentation can help your system run at peak performance.


New Employee Orientation

New employees are often so pleased with the prospects of the new job, they may not recall all of the information they discussed during the hiring process.

Orientation is the key to a better start and a happier, more productive employee. This is an opportune time to provide new employees with information that will ease the transition into the workplace and inspire them to have a good attitude towards the company and their new job.

Generally the employee’s orientation should cover three key areas:

  • A general orientation — meet the company
  • A departmental orientation — meet the team, and
  • A specific job orientation — here is how you fit in.

When new employees are well informed at the outset, they are better prepared to take on their new responsibilities and are not as likely to take up valuable time of other personnel unnecessarily.

Starting Out Right

A well-planned orientation program avoids potential miscommunication and lost productivity and helps the new employee adapt to the new job and workplace faster.

  • Plan and prepare an orientation schedule for the employee’s first day.
  • Indicate the time and locations of meetings with other staff, their titles, departments, local telephone numbers and the expected length of each visit.
  • Provide each of these individuals with a copy of this schedule so they are well prepared to help the new employee learn about the company and its people.
  • Schedule time for completing and signing documents for income tax purposes, health benefits and other employment matters. Make sure the employee’s SIN, address, and résumé are on file.
  • Make sure the new employee’s work area is equipped with the tools needed to do the job.

The Company

  • Provide a brief overview of the company, including the company’s history, its products and services, the management structure, the competition, and the company’s strategies and goals. If possible, have a chart available that shows how the company is set up and includes photographs of the key personnel and their titles.
  • Provide information about the company’s customers, suppliers and any other parties with which the company interacts.
  • Consider matching the employee with a mentor in the workplace to turn for information or to discuss any difficulties.
  • Discuss the daily operations and matters such as staff meetings, hours of work, time cards and lunch breaks.

The Tour

  • Take the employee on a tour of the company to familiarize him or her with the various areas, staff, and equipment.
  • Introduce the employee to co-workers and provide information about their positions, career background and personal interests.
  • Point out any areas that are restricted for administrative, security or safety reasons.


  • Explain the administrative details of the employment, such as the pay period, company benefits, statutory holidays and vacation time.
  • Explain the company’s policies on staff development, advancement, salary/wage review and sick leave.
  • Discuss the probationary period and clarify aspects of the job and expected performance.
  • If it is a contract position, ensure that the employee signs the contract.
  • If the employee is to receive salary plus commission, put the commission rate in writing.


  • Schedule the employee for any training that must be taken to meet business, production or safety requirements.
  • Make sure the employee is aware of all safety regulations in the building and the procedures that must be followed in an emergency.
  • Ensure the employee is aware of the safe and proper use of any equipment that is required for the job as well as any safety equipment that must be worn.

Most employees start a new job with some anxiety about meeting their new co-workers and measuring up to their new job duties and expectations. While a good orientation program takes time and effort, it is an important investment.

A well planned orientation can ensure a smooth transition, avoid miscommunication, and ultimately reduce staff turnover.

BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

BUSINESS MATTERS is prepared bimonthly by The Canadian Institute of Chartered Accountants for the clients of its members.

Richard Fulcher, CA – Author; Kathleen Aldridge, B.A., Dip. Ed. – CICA Editor.