Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
PRINCIPAL ISSUE:
Deduction of RRSP - Judges
Position:
Application of Act.
REASON: N/A
5-973236
XXXXXXXXXX L. J. Roy, CGA
December 12, 1997
Dear XXXXXXXXXX:
This is further to your verbal request (XXXXXXXXXX/Aubé) concerning the amount that a federal judge may deduct in respect of contributions to a registered retirement savings plan ("RRSP").
The Income Tax Act provides that a taxpayer's "RRSP deduction limit" will be equal to the taxpayer's "unused RRSP deduction room" at the end of the preceding taxation year plus the amount by which the lesser of the "RRSP dollar limit" for the year and 18% of the taxpayer's "earned income" for the preceding taxation year exceeds the aggregate of all amounts each of which is the taxpayer's pension adjustment for the preceding taxation year in respect of an employer or the prescribed amount in respect of the taxpayer for the year, less the taxpayer's net past service pension adjustment for the year.
The unused portion of the RRSP deduction limit for a year, called unused RRSP deduction room, is included in the RRSP deduction limit for the following year. Therefore, a taxpayer can carry forward the unused RRSP deduction room and use it for future years.
Where a judge is in receipt of a salary under the Judges Act, the Income Tax Regulations prescribe a reduction in the RRSP deduction limit. The prescribed amount of a judge for a year will be equal to the lesser of 18% of the salary received as a judge for the previous year minus $ 1,000 and the money purchase limit for the previous year. For 1996 to 2002, the money purchase limit and the RRSP dollar limit are $13,500.
You will find attached two examples which show how to calculate the RRSP deduction limit for the years 1997 and 1998.
I trust that the above information will be of assistance to you.
Yours truly,
Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
EXAMPLE I
The following example is based on Bill C-28 tabled on December 8, 1997 and the draft amendments to the Income Tax Regulations of February 1997.
An individual is appointed judge in November 1997. The individual worked in a law firm and did not participate in a pension plan. For 1996 and 1997, his salary, as a lawyer, was $100,000 for each year and he received in 1997 $ 15,000 as a judge.
The RRSP deduction limit for this individual for 1997 and 1998 will be as follows assuming that there is no unused RRSP deduction room at the end of each taxation year.
1997 1998
Lesser of:
(a) RRSP dollar limit
for the year and $ 13,500 $ 13,500
(b) 18% of the earned
income for the
previous year 18,000 20,700
less:
The prescribed amount
for the year nil 1,700 (1)
RRSP deduction limit $ 13,500 $ 11,800
(1) lesser of
(a) 18% of $ 15,000 minus $ 1,000 *
(b) $ 13,500
*The February 18, 1997 Budget proposed to reduce this $1,000 to $600 for 1998.
EXAMPLE II
The following example is based on Bill C-28 tabled on December 8,1997 and the draft amendments to the Income Tax Regulations of February 1997.
An individual worked as a judge for the years 1996 and 1997 and received a salary of $ 150,000.
The RRSP deduction limit for this individual for 1997 and 1998 will be as follows assuming that there is no unused RRSP deduction room at the end of each taxation year.
1997 1998
Lesser of:
(a) RRSP dollar limit
for the year and $ 13,500 $ 13,500
(b) 18% of the earned
income for the
previous year 27,000 27,000
less:
The prescribed amount
for the year 13,500(1) 13,500 (1)
RRSP deduction limit nil nil
(1) lesser of
(a) 18% of $ 150,000 minus $ 1,000 *
(b) $ 13,500
*The February 18, 1997 Budget proposed to reduce this $1,000 to $600 for 1998.
