Personal Finance

Take Commuted Value or not

  • Last Updated:
  • Oct 23rd, 2017 7:31 pm
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Member
Apr 20, 2011
341 posts
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Scarborough
mcewen wrote:
Apr 12th, 2017 12:05 pm
I believe (not 100% certain), that the $22k part can be transferred to an RRSP whether you have room or not. I don't believe you will get a deduction on it. It was the "non-vested" part of your pension. Essentially you just move it from a sheltered Benefit Plan to your sheltered RRSP.

If you remove it from the shelter (IE, spend it) there will be tax implications.

Not 100%, but 95% sure.
I'm in the same boat.

I understand that there is a portion of the immediate settlement that ca be transferred to a locked-in retirement vehicle (ex. LIRA). However, just to clarify, for the remainder amount that must be take in cash less applicable withholding taxes, can this remainder amount be transferred to a RRSP (if I have contribution room) to avoid taxes?
[OP]
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Jan 13, 2017
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dainfamous41 wrote:
Apr 18th, 2017 9:15 pm
I'm in the same boat.

I understand that there is a portion of the immediate settlement that ca be transferred to a locked-in retirement vehicle (ex. LIRA). However, just to clarify, for the remainder amount that must be take in cash less applicable withholding taxes, can this remainder amount be transferred to a RRSP (if I have contribution room) to avoid taxes?
Yes with HOOPP I had the option of transferring it to an RRSP depending if I had room
Member
Apr 20, 2011
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Scarborough
ilostmyid wrote:
Apr 18th, 2017 10:55 pm
Yes with HOOPP I had the option of transferring it to an RRSP depending if I had room
Ok. Is it able to be transferred to the RRSP directly without taxing it?
[OP]
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Jan 13, 2017
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dainfamous41 wrote:
Apr 19th, 2017 9:41 pm
Ok. Is it able to be transferred to the RRSP directly without taxing it?
Yup. If you send them notice is assessment showing there is RRSP room
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Nov 3, 2008
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National Capital Reg…
Curious here. Did you receive Pension Adjustment Reversal amount? When you participate in DB plan, your RRSP room is reduced by formula for Pension Adjustment. When plan terminates, usually Pension Value is below what was reduced by any PA, with PAR restoring more room for you, on top of your CRA NOA RRSP deduction limit.
Sr. Member
Jan 14, 2010
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NCR-Manchester wrote:
Apr 20th, 2017 2:44 pm
Curious here. Did you receive Pension Adjustment Reversal amount? When you participate in DB plan, your RRSP room is reduced by formula for Pension Adjustment. When plan terminates, usually Pension Value is below what was reduced by any PA, with PAR restoring more room for you, on top of your CRA NOA RRSP deduction limit.
I didn't. I think my payout value was quite high (had been in pension ++ years)

I really tried to research this, as I was hoping for some additional RSP room. There is a bit of a complicated formula depending on your age, your years until retirement, years in pension, and the proportion of payout vs. LIRA (IIRC?). From what I saw, it is the employer or pension plan who calculates this. Unfortunately, the guide is really written for them. Here's the best I found, with a few examples:
CRA PAR info
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Apr 29, 2008
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Montreal
ilostmyid wrote:
Apr 6th, 2017 6:25 pm
I can also transfer to OMERS but I'm planning to start my own business in next 6 months so not sure if I should bother with transferring over or not...
If you don't plan to stay with OMERS, dealing with transfer might not be worth it.

For people reading this thread in another situation, I would consider a transfer if you plan to stay long-term with your new employer, since it will give you years of experience making you eligible for a higher pension at new employer. Example it could give you 3.5 years extra experience in Omers.
Member
Apr 20, 2011
341 posts
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Scarborough
ilostmyid wrote:
Apr 18th, 2017 10:55 pm
Yes with HOOPP I had the option of transferring it to an RRSP depending if I had room
So the cash portion was transferred to my RRSP, however when speaking to TD waterhouse they said that this cash transfer from my previous employer DB pension fund to my RRSP does not count as RRSP contribution.

They said I would need to get a letter from my previous employer stating explaining the transfer. I didn't understand why I needed to provide this.

My understanding is that if I showed my previous employer that I had the RRSP contribution room and they transferred the cash, won't this eat into my contribution limit and hence count as a contribution?
Member
Apr 20, 2011
341 posts
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Scarborough
dainfamous41 wrote:
Oct 18th, 2017 9:52 pm
So the cash portion was transferred to my RRSP, however when speaking to TD waterhouse they said that this cash transfer from my previous employer DB pension fund to my RRSP does not count as RRSP contribution.

They said I would need to get a letter from my previous employer stating explaining the transfer. I didn't understand why I needed to provide this.

My understanding is that if I showed my previous employer that I had the RRSP contribution room and they transferred the cash, won't this eat into my contribution limit and hence count as a contribution?
any help?
Sr. Member
Jan 14, 2010
514 posts
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That doesn't really make sense in my experience. In general ~half goes directly to LIRA, in taxed and unreported as income. Then, if you have room, you can send the remaining amount to your RSP up to your contribution limit.
Proving to your employer or HOOPP that you have RSP contribution room only allows you to get that amount (either 'retirement allowance' from employer (ie: severance) or the pension payout from HOOPP) without tax taken off.
My $$ transferred from DB pension to my RSP was added to my T4 income, written off as a RSP contribution, and definitely came off my contribution limit (I know, as I had to take some in cash outright and wait until the next tax year to shelter it).

My experience using (fake) round #s: $100000 pension payout + $5000 employer severance
  • prove to employer have RSP room of $20000 = $5000 deposited tax free to RSP
  • prove to HOOPP have RSP room remaining of $15000 = $40000 tax free direct to LIRA, $15000 tax free direct to RSP, cheque for $30000 mailed (remaining $45000 - tax removed from HOOPP prior *** beware, this was not an adequate amount in my case and I still owed a significant amount come filing time)
Last edited by cocodc on Oct 19th, 2017 9:58 pm, edited 2 times in total.
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Feb 1, 2012
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TORONTO
dainfamous41 wrote:
Oct 18th, 2017 9:52 pm

So the cash portion was transferred to my RRSP, however when speaking to TD waterhouse they said that this cash transfer from my previous employer DB pension fund to my RRSP does not count as RRSP contribution.

They said I would need to get a letter from my previous employer stating explaining the transfer. I didn't understand why I needed to provide this.

My understanding is that if I showed my previous employer that I had the RRSP contribution room and they transferred the cash, won't this eat into my contribution limit and hence count as a contribution?
dainfamous41 wrote:
Oct 19th, 2017 9:39 pm

any help?
I have previously transferred 2 DB pensions to brokers and this sounds strange to me. A DB pension is paid out in 2 parts.

The amount below the Maximum Transfer Value (MTV) must be done as a registered transfer from the pension to a compatible LIRA. This is done via a T2151 form.
https://www.canada.ca/en/revenue-agency ... 147-3.html

If there is an amount above the MTV it could be transferred into your RRSP if you have the contribution room. In that case you would need to provide your employer's pension administrator with confirmation of available RRSP room. This would usually be something from CRA showing your available RRSP room.

If you don't have any RRSP room the pension administrator would pay the amount above the MTV in cash. probably in the form of a cheque.

So I believe your understanding is correct. You should have to prove to your previous employer's pension administrator that you have the RRSP room. I don't know why you would have to show TD a letter from your previous employer. Is it possible that the amount was paid into your cash account rather than a registered transfer into your RRSP?
Invest your time actively and your money passively.
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Apr 20, 2011
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Scarborough
Deepwater wrote:
Oct 19th, 2017 10:05 pm
I have previously transferred 2 DB pensions to brokers and this sounds strange to me. A DB pension is paid out in 2 parts.

The amount below the Maximum Transfer Value (MTV) must be done as a registered transfer from the pension to a compatible LIRA. This is done via a T2151 form.
https://www.canada.ca/en/revenue-agency ... 147-3.html

If there is an amount above the MTV it could be transferred into your RRSP if you have the contribution room. In that case you would need to provide your employer's pension administrator with confirmation of available RRSP room. This would usually be something from CRA showing your available RRSP room.

If you don't have any RRSP room the pension administrator would pay the amount above the MTV in cash. probably in the form of a cheque.

So I believe your understanding is correct. You should have to prove to your previous employer's pension administrator that you have the RRSP room. I don't know why you would have to show TD a letter from your previous employer. Is it possible that the amount was paid into your cash account rather than a registered transfer into your RRSP?
Yes I filled out the CRA T2151E form for my RRSP account and gave it to my previous employer's pension administrator and also provided proof of RRSP room with a copy of my most recent CRA assessment statement.

The amount was directly transferred into my RRSP and showed up on my RRSP statement for that month, but was not credited as a contribution under my contribution history for the RRSP account, which started the issue....

Just wondering, what I need to tell TDDI to credit this as a contribution and get my RRSP contribution slip for the end of the tax year?
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Feb 1, 2012
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I don't know. Have you tried going back to TDDI to ask exactly what they want to see on the letter from your previous employer?

Just a guess. Is the transfer from the pension to the RRSP pre-tax or after tax? Normally RRSP contributions are made in after-tax dollars, the financial institution issues a RRSP contribution slip which enables you to get a refund, converting the contribution from after-tax to pre-tax dollars.

If the pension money never had income tax applied then no tax-refund should be issued. Did you make contributions to the pension fund? If so did you get a tax credit at the time?

Just guessing though so I may be way off base.
Invest your time actively and your money passively.
Member
Apr 20, 2011
341 posts
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Scarborough
Deepwater wrote:
Oct 20th, 2017 11:34 am
I don't know. Have you tried going back to TDDI to ask exactly what they want to see on the letter from your previous employer?

Just a guess. Is the transfer from the pension to the RRSP pre-tax or after tax? Normally RRSP contributions are made in after-tax dollars, the financial institution issues a RRSP contribution slip which enables you to get a refund, converting the contribution from after-tax to pre-tax dollars.

If the pension money never had income tax applied then no tax-refund should be issued. Did you make contributions to the pension fund? If so did you get a tax credit at the time?

Just guessing though so I may be way off base.
The response I got from my previous employer pension administrator was:

"The amount has to be classified as a transfer because the money coming out of the company’s registered pension was paid to you on a non-taxable basis and is being transferred to another tax sheltered vehicle, your RRSP. If you were paid the net amount (i.e. less income tax) and you put it into your RRSP then it would be considered a contribution."

I guess this makes sense since as you said that pension money was deducted from paystub as before tax dollars.

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