December 12, 2008 

The November 27 Economic and Fiscal Statement created more than political controversy.  It also created news and some uncertainty for holders of RRIFs and the financial institutions that administer them. 

For 2008 only, the required minimum withdrawal from RRIFs is reduced by 25%.  Amounts not yet paid from a RRIF in 2008 can be reduced.  Or if amounts have already been paid out of RRIFs, they can be re-contributed any time up to 30 days after the proposed legislation is enacted, and be claimed as a 2008 income tax deduction. 

On December 9, Canada Revenue Agency (CRA) posted a Notice on its website at http://www.cra-arc.gc.ca/whtsnw/tms/rrf-fq-eng.html confirming that individuals and financial institutions can act upon the proposals before the law is passed, if they choose to.  It confirms the Government’s intention to proceed with the RRIF proposal, regardless of the prorogation of Parliament.  CRA promises no penalties if the proposal never becomes law.  On the other hand, FIs that are cautious about adopting tax measures that are not yet law can continue adhering to the “old” rules, and subsequently accept repayments to RRIFs of the extra 25% in 2009, after the new legislation is passed.

Further, on December 11, the Minister of National Revenue issued a News Release to the public confirming this information. http://www.cra-arc.gc.ca/nwsrm/rlss/2008/m12/nr081211-eng.html

Credit unions and other financial institutions will need to weigh the practicalities of adjusting systems and procedures to accommodate these new rules before year-end.  It may be more practical to continue paying out 100% of the minimum amount in 2008 and then creating new processes for 2009 to contact recipients of amounts from RRIFs, determine if they wish to pay back 25% of the minimum amount, and effect the transfer back to the RRIFs. 

But there are public relations and communications issues.  Credit unions should consider their response to a member who wishes to have their remaining payments reduced in December or wishes to repay before year-end the excess already received.  From a member’s perspective, this is a preferred course because the individual would receive a T4RIF for the net, final amount in a timely fashion; would not have to delay filing their tax return while waiting for his/her credit union to accept repayment of the tax-deductible 25%; and would not have to remember to claim the separate deduction on the 2008 tax return.  A knowledgeable member might cite CRA’s position that this is acceptable or point out that the financial institution down the street is accepting requests for this treatment.  Yet, as mentioned above, the credit union’s systems or supplier simply may not be ready to accommodate this option so late in December.

There is no official word yet on whether FIs must create new documentation to support a tax deduction by a RRIF-holder for a repayment to their RRIF in 2009.  However, initial indications are that no T-slip or official receipt will be required.  This would suggest that a taxpayer may be requested by CRA auditors to prove the deduction by producing financial statements etc, but no paper would have to be submitted with the T1 tax return.