Introduction to Registered Plan

External activity is defined by plan type and is usually broken down into following categories:

• Contributions: Contribution from the system perspective is any credit transaction into the plan from outside the plan. The contributions can be done by the user. They are configured based on rules of plan types, age etc. They can come from any channel as defined by the financial institution. For every contributions made, contribution receipts can be generated.
• Withdrawals and payments: Withdrawals are debit transactions to the plan to an account outside the plan and are subject to Tax withholding. Withdrawals can be ad-hoc by the user or automated as is the case for the RRIF payments. They can be initiated by user or any channel as defined by the institution. Withdrawing funds from an RRSP affects the member’s taxable income. Any withdrawal amount from an RRSP’s tax sheltered status will be added to the member’s earned income for the year of the withdrawal. All RRIF payments are subject to annual taxation. However, RRIF withholding tax is deducted at the source (i.e. when payment is made) only from those amounts exceeding the annual minimum payment. The tax should be calculated in the basis of ITA and amount scheduled to be withheld, the greater of which would be deducted.
• Withdrawal processing based on net or gross amount: Members have the option to select net or gross amounts on partial redemptions, but these calculations are done manually. In Temenos Transact, we require the system to do these calculations and post any defined early redemption penalties, withholding taxes, and fees, and to credit the member based on the net or gross amount selection, all automatically. When the partial redemption request is processed, the following accounting entries need to be posted automatically. Any defined early redemption penalties are debited from the investment principal and credited to an internal Interest Penalty account. Any withholding tax is deducted in accordance with CRA taxation rules and credited to an internal account. Any defined fees are debited from the investment principal and credited to the internal fee account. The remaining amount is then credited to the member account.
• Future dated withdrawal transaction: All post-dated requests should be “warehoused” or stored for posting until the maturity date.
• Transfers: Transfers are debit or credit transactions into the plan to another plan and are subject to rules and tax withholding. Transfers also include the conversions from one plan to another. They are originated by the user or automated as is the case for the automatic conversions from RRSP to RRIF. They are usually performed by the user. If RRSPs or RRIFs are included in property to be divided between spouse or common law partners following marriage breakdown, all or part of the RRSP may be transferred between the spouse or common law partners without income tax consequences. The transfer must be made pursuant to a court order or a written separation agreement and T2220E — transfer from an RRSP or a RRIF to another RRSP or RRIF on Breakdown of Marriage or Common-Law Partnership must be completed.
• Pay outs and death settlements or estate handling: Pay outs are debit transactions to the plan to an account outside the plan and are subject to tax withholding and rules. If the annuitant of the plan is deceased than the pay-out is referred as death settlement. There additional rules for processing the death settlements and tax reporting. Those types of transactions are always performed by the user. On the death of an RRSP plan holder, the proceeds of the contract are released to the beneficiary designated in the RRSP documentation or to the estate of the deceased. When the spouse/common law partner is named on the most recent valid designation of beneficiary documentation in the RRSP file or named in the deceased annuitant’s Will as beneficiary of the RRSP contract in particular, proceeds received out of the RRSP are referred as “refund of premiums”. The options available to the spouse/common law partner are:
  • Transfer to an RRSP plan in the name of the beneficiary spouse/common law partner
  • Transfer to a RRIF plan in the name of the beneficiary spouse/common law partner
  • Funds paid out directly to the beneficiary spouse/common law partner. Do not withhold tax, unless the beneficiary spouse/common law partner specifically requests for withholding tax to be withheld.

A T4RSP is issued in the name of the surviving spouse or common law partner for the total payout of the RRSP plan. The contract number is the deceased spouse’s, the name and social insurance number is the beneficiary spouse or common law partner’s. There should also be an RRSP tax receipt produced for the amount that was transferred into the RRSP. If the funds are being transferred to the RRIF of the surviving spouse or CLP then a letter is issued to CRA, Regarding RRSP Transfer of Refund of Premiums to RRIF on financial Institution letterhead.

When an adult person other than the spouse or common law partner is named as beneficiary on RRSP documentation, the payment of the RRSP funds will be as described below.

The full proceeds are paid to the beneficiary. No tax is withheld at source. The estate will be taxed for the Plan to the date of death and the designated beneficiary will be taxed for the interest earned from the date of death to the date of withdrawal. The beneficiary receives a T4RSP only for the amount of income earned in the plan from the date of death to the date of payout.

On the death of a RRIF plan holder, the Plan will remain intact only when the spouse or common law partner is named successor annuitant on the RRIF Application under the Election (Optional) section of the form. If the spouse or common law partner is named beneficiary in the most recent valid designation of beneficiary documentation on the Registered Plan Revisions or in the Probated Will, the funds can be taken in cash or transferred tax-free to a RRSP, RRIF. If the designated beneficiary is someone other than the spouse or common law partner, the proceeds will be released to that beneficiary. If a beneficiary is not named, then the RRIF will form part of the deceased annuitant’s estate and be distributed accordingly.

If the spouse or common law partner is named in the most recent valid designation of beneficiary documentation on the registered plans application or revisions form rather than as successor annuitant under the elections (optional) section of the application, or named in the deceased annuitant’s will as beneficiary of the RRIF contract in particular, the spouse or common law partner is considered the “designated beneficiary”.

The options available to the spouse/common law partner are:

• Transfer to a RRIF plan in the name of the beneficiary spouse or common law partner. Any remaining minimum must be paid to the beneficiary spouse or common law partner prior to year end.
• Transfer to an RRSP plan (if applicable) in the name of the beneficiary spouse or common law partner. Any remaining minimum must be paid to the beneficiary spouse or common law partner prior to the transfer or by year end
• Funds paid out directly to the beneficiary spouse or common law partner. No withholding tax, unless the beneficiary spouse or common law partner specifically asks for withholding tax to be withheld.

The Financial Institution will issue a T4RIF in the name of the surviving spouse or common law partner for the total payout of the RIF plan. The Financial Institution will issue a letter on Financial Institution letterhead to CRA for all amounts transferred to their RRIF as a designated benefit from the deceased’s RRIF.

When an adult person other than the spouse or common law partner is named as beneficiary on RRIF documentation, the payment of the RRIF funds will be as described below.

The full proceeds are paid to the beneficiary. No tax is withheld at source. The estate will be taxed for the Plan to the date of death and the designated beneficiary will be taxed for the interest earned from the date of death to the date of withdrawal. The beneficiary receives a T4RIF only for the amount of income earned in the plan from the date of death to the date of payout.

Internal activity is defined as any activity within the plan. The internal activity is not regulated and is controlled by rules set by the institution, managed by the customer or the user if such arrangements exist. Temenos Transact should allow that the internal activity to be configured and no internal activity based transactions affect out of the plan accounts. Internal Activity is any of the following:

• Purchase of an investment account of term.
• Automated deposits or principal increases to a builder term.
• Automated redemptions due to scheduled payments.
• Closure of an investment account or term and transfers between accounts within the plan.