CANFORGEN on Pay and PIL

[TangoTwoBravo]

Any of you financial wizards able to advise between a boat, an ATV or a snowmobile?

 

[Good2Golf]

Any of you financial wizards able to advise between a boat, an ATV or a snowmobile?

Those are for amateurs....get an airplane!  :nod:

 

[GAP]

Those are for amateurs....get an airplane!  :nod:

Only if you get to jump out of it, otherwise you're restricted to those little roads they put for landing them on. The long roads are being hogged by those little tiny beetles crawling along them.......oh, they're cars?  Who Knew!! 


and besides, everytime you want to park it, you have to come down!!

 

[aesop081]

get an airplane!  :nod:

Ok, i have a new option !!!!!!

:nod:

 

[Good2Golf]

Only if you get to jump out of it, otherwise you're restricted to those little roads they put for landing them on. The long roads are being hogged by those little tiny beetles crawling along them.......oh, they're cars?  Who Knew!! 


and besides, everytime you want to park it, you have to come down!!

GAP, the thing is, you don't even have to fly it to lose money!  Tango2Barvo looked like he wanted to burn money, so I provided what I thought was, short of actually burning the money, the best way to see your money disappear.  ;D

 

[Remius]

To get real value for your money get a hovercraft.

 

[Pusser]

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?

You would have to do some serious number crunching on this one (get some professional advice).  As I understand the rules (and I am no expert), you would still have to pay tax at source at YOUR rate in order to get the money.  Then, when you put into your wife's RRSP, she would get a tax refund when she files, but at HER rate.  I would think (assuming her rate is lower than yours) that this would result in a net loss and not be worth it.  As for how long it has to stay in the RRSP is more up to how it's invested, not the fact that it's in an RRSP.  In other words, once you put it into the RRSP, you should be able to take it out again right away, unless the investment you chose makes you pay a penalty for early withdrawal.

At this point I should illustrate a common mistake that people make with RRSPs.  An RRSP is not an investment in itself.  It is a plan or tax regulation under which investments are made.  So an RRSP can include, stocks, bonds, GICs, mutual funds and even savings accounts.  You can withdraw money from an RRSP at anytime without penalty, unless the specific investment itself (e.g. a mutual fund) levies a penalty for early withdrawal.  However, keep in mind that you will have to pay tax on any withdrawal at that point (not a penalty in the truest sense).  The exception to this would be a "locked-in" RRSP, which you are simply not allowed to withdraw from until you reach retirement age.  Locked-in RRSPs are usually used in cases where an individual has left an employer and the former employer has paid out their pension.

Another thing I would like to point out is that the last time folks were getting large payouts all at once (e.g. Leave buy-back plan and FRP) it was made very clear that payouts would be taxed at source unless members had permission from Revenue Canada (now CRA) to waive that regulation.  In other words, if your intent is to put money into an RRSP, be prepared to contact CRA and request permission to do this.  Hopefully the CBI will clarify the requirements and there will be avenues set up to facilitate this.

The more I'm thinking about this, I'm inclined to elect the split option.  I'm thinking that I will take as much severance now as I need to max out my RRSP, then wait until retirement to take the rest (when presumably it would be a retirement allowance) and apply the $2000 per year prior to 1996 rule to put the rest into my RRSP.  I'll have to check to see if that will fly.  If that's the case, there's a good possibility I could receive my entire severance tax free!  Well, at least until I want to actually buy groceries... ;D

 

[GAP]

GAP, the thing is, you don't even have to fly it to lose money!  Tango2Barvo looked like he wanted to burn money, so I provided what I thought was, short of actually burning the money, the best way to see your money disappear.  ;D

oh yeah, easy peasy!!

 

[GAP]

What about a joint RRSP/TFSA/ or something that allows him to gift it to her, directly into an RRSP, etc....

 

[Occam]

I think anyone wanting to take advantage of the pre-1996 amounts is going to be SOL.  See Q11/A11 at http://www.cmp-cpm.forces.gc.ca/dgcb-dgras/ps/sg-ig/sg-ig/pi-as-eng.asp.  They're not calling it Severance pay, they're calling it Payment In Lieu of severance pay.  I'd be pissed if it affected me...

 

[liams mom]

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?

 

[FSTO]

You would have to do some serious number crunching on this one (get some professional advice).  As I understand the rules (and I am no expert), you would still have to pay tax at source at YOUR rate in order to get the money.  Then, when you put into your wife's RRSP, she would get a tax refund when she files, but at HER rate.  I would think (assuming her rate is lower than yours) that this would result in a net loss and not be worth it.  As for how long it has to stay in the RRSP is more up to how it's invested, not the fact that it's in an RRSP.  In other words, once you put it into the RRSP, you should be able to take it out again right away, unless the investment you chose makes you pay a penalty for early withdrawal.

At this point I should illustrate a common mistake that people make with RRSPs.  An RRSP is not an investment in itself.  It is a plan or tax regulation under which investments are made.  So an RRSP can include, stocks, bonds, GICs, mutual funds and even savings accounts.  You can withdraw money from an RRSP at anytime without penalty, unless the specific investment itself (e.g. a mutual fund) levies a penalty for early withdrawal.  However, keep in mind that you will have to pay tax on any withdrawal at that point (not a penalty in the truest sense).  The exception to this would be a "locked-in" RRSP, which you are simply not allowed to withdraw from until you reach retirement age.  Locked-in RRSPs are usually used in cases where an individual has left an employer and the former employer has paid out their pension.

Another thing I would like to point out is that the last time folks were getting large payouts all at once (e.g. Leave buy-back plan and FRP) it was made very clear that payouts would be taxed at source unless members had permission from Revenue Canada (now CRA) to waive that regulation.  In other words, if your intent is to put money into an RRSP, be prepared to contact CRA and request permission to do this.  Hopefully the CBI will clarify the requirements and there will be avenues set up to facilitate this.

The more I'm thinking about this, I'm inclined to elect the split option.  I'm thinking that I will take as much severance now as I need to max out my RRSP, then wait until retirement to take the rest (when presumably it would be a retirement allowance) and apply the $2000 per year prior to 1996 rule to put the rest into my RRSP.  I'll have to check to see if that will fly.  If that's the case, there's a good possibility I could receive my entire severance tax free!  Well, at least until I want to actually buy groceries... ;D

Will the severence be paid out at your current rank? Or let say you get promoted a couple of years down the road, will you be paid out at your rank at retirement?

 

[smale436]

    I'm having a hard time figuring that out after reading the Canforgen a dozen times now. I'm trying to figure out the best option for me as a Spec Cpl with 7 years in and a RRSP that is already maxed out. Although next years contribution room would probably around 3500-4000 dollars.

 

[blacktriangle]

Yeah I am also curious as well...honestly for the amount I probably have accumulated, it won't be much. So I am wondering what the best thing to do would be?

I didn't even know we used to get any of this...

 

[Occam]

Seems timely to post this.  Get in and avoid the rush, I would say...



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[cdnsailor]

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.

 

[stellarpanther]

I heard the rumor yesterday at work that we were going to start paying 50/50 for pension but haven't seen anything.  Does anyone know when this will take affect?

 

[SupersonicMax]

I heard the rumor yesterday at work that we were going to start paying 50/50 for pension but haven't seen anything.  Does anyone know when this will take affect?

It doesn't actually give specific numbers for the CF Pension Plan.  All it says is that the Public Sector Employees will pay 50/50 eventually and that the CF, RCMP and MPs will have a comparable adjustment.

 

[old fart]

Will the severence be paid out at your current rank? Or let say you get promoted a couple of years down the road, will you be paid out at your rank at retirement?

Question/Answers 8 and 9 apply...

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

Q8.  What rate of pay will be used to determine the payment in lieu?

A8.  The payment in lieu of a severance benefit will be based on the CF member’s substantive rank and pay increment for the following effective dates:

1 October 2011, Colonel and above or Lieutenant-Colonel Legal and above;
date of promotion if promoted substantively to Colonel or Lieutenant-Colonel Legal between 1 October 2011 and 29 February 2012; and
1 March 2012, NCMs and all other Officers.

Q9.  What rate of pay will be used to determine the severance benefit upon release?

A9.  Should a CF member elect to receive a severance benefit upon release, then the monthly rate of pay and pay increment for the member’s substantive rank in effect on the date of release or transfer, from the Regular Force or Primary Reserve Force, will be used to calculate the final severance benefit.

In my own case, my anniversary date for severance was 15 April....so I am a happy to see the pro-rated aspect....

Glad to see these increases, although as I am entering what I expect to be my last 12 months for 35...the impact wont be that great...although I could stay for a a few years yet to realize the impact...At any rate, every little helps!!

 

[Occam]

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.

It doesn't appear so, based on Q9/A9 of the FAQ in the post preceding this one.  Looking at all the references, if you draw your severance before retirement, you get a "payment in lieu of severance pay", which is a non-eligible amount for transferring to an RRSP under the pre-1996 amounts (you can still use your accumulated RRSP headroom to dump the money into).  If you draw it on release, you're getting a true "severance gratuity", for which you can use the $2k per year of service prior to 1996 to deposit RRSP funds, in addition to any unused RRSP headroom.

Again, talk to CRA and a financial planner.  If you're over 35+ years of service, I certainly hope you've availed yourself of at least one SCAN seminar - if not, book yourself ASAP, because release benefits and tax implications are discussed as part of the SCAN seminar.