Protecting RRSPs from creditors
This article was
reproduced from The Financial Post July/97.
Can you tell me who has access to RRSP funds in case of a bankruptcy? Can Revenue Canada claim any portion for taxes owed?
RRSP investments bought from a life insurance
company generally cannot be seized by creditors. This includes segregated
funds, deferred annuities and any other life insurance products that can be
held as an RRSP.
Andrew Reback, a lawyer specializing in taxation with Richter Usher & Vineberg, a Montreal-based chartered accounting firm, says life insurance products' creditor-proof status stems from a Supreme Court of Canada decision years ago; Royal Bank of Canada versus North American Insurance Co. and Ramgotra.
The court ruled that "a trustee in
bankruptcy cannot seize and distribute the proceeds of insurance policies owned
by a bankrupt where he or she qualifies for protection under a provincial
insurance act," Reback says.
"This decision is of great importance to RRSPs as all provincial
insurance acts have defined life insurance to include an undertaking to provide
an annuity. As a result, annuity products such as (those sold as) RRSPs are
considered life insurance products and are exempt from seizure from
creditors."
Life insurance products are considered to be life insurance policies and have named beneficiaries. The creditor protection only applies if the RRSP's named beneficiary is a spouse, parent, child or grandchild of the "policy" holder.
Reback says that while Revenue Canada as a creditor cannot seize such assets, the Supreme Court Judgment noted that "creditors may still be able to attack the validity of an insurance designation under provincial fraud legislation where it can be established that the debtor entered into the insurance arrangements with the intention to defraud creditors."
RRSP products sold by other financial
institutions such as banks, trust companies and mutual fund companies do not
enjoy protection against creditors. As for Revenue Canada being able to seize
such assets to cover unpaid taxes, Reback says there is no clear legal
consensus on the right of the tax department to require an institution to
collapse an RRSP for this purpose.
For taxpayers concerned about the safety of their RRSP assets, he suggests "the safest route is to purchase an insurance contract and designate a spouse, child or other permitted person as a beneficiary at a time when bankruptcy of the taxpayer is not even a remote possibility."
No GST credit
My income tax assessment stated that I am not
eligible to receive the GST credit and that I made an error when trying to
claim it on my tax return. Can you review for me how this program works and how
much of a rebate a family of four may receive?
The goods and services tax credit was introduced in 1991, when the much-loved tax was introduced, to ease the burden for lower-income families. It is based on the previous year's income and paid quarterly.
The annual value of the credit is $199 per adult and $105 per child, subject to a reduction formula. The credit is reduced by 5% for each dollar by which the parents’ combined income exceeds $25,921.
The maximum GST credit for a family with two parents and two children is $608. In this case, there would be no credit if the family income is about $38,000 or higher.
The GST credit should not be confused with input tax credits that are claimed by GST registrants (usually businesses) as a refund of GST paid on the purchase of business-related goods and services.
