Contributory Professional Retirement Savings Plan (CPRSP) – Part II

I recently finished a series of posts on the negotiated benefits that are available to BC physicians, and have been working on a new series about professional incorporation. Actually, it’s more like I am trying to work on a new series. I’m finding it hard not to keep looking at my emails each time a new one comes in. I usually go through them at the end of the day, but I still get a notification each time I receive a new one. It’s that nice little semi-transparent box that pops up for a few seconds telling you who the message is from and what it’s about. The one that’s tough to ignore. The one that’s letting me know I have yet another message about the CPRSP and RRSP contributions.

It’s a hot topic right now because the deadline to make an RRSP contribution for a deduction on your 2011 personal income tax return is February 29, 2012. However, the deadline to submit your claim for a CPRSP payment to be deposited to your RRSP by February 29 is January 23, 2012. The BCMA will still review and process claims received after January 23, but cannot guarantee that the CPRSP payment will be available as an RRSP deduction for 2011. The deduction won’t be lost – if the CPRSP payment ends up being deposited to your RRSP after February 29, it will be available for deduction on your 2012 income tax return.

I discussed the basics of the CPRSP in an earlier post, but I didn’t cover everything to avoid information overload. Based on the questions I’ve received, it looks like more explanation is warranted.

Timing

The BCMA usually releases the CPRSP benefit in the fall of each year and notifies physicians at that time. You can retrieve your CPRSP entitlement information (and other benefit information) from the members’ section of the BCMA website.

The CPRSP benefit is included in your income in the year in which it is actually paid to your RRSP, and you will also receive a deduction for the CPRSP amounts deposited to your RRSP (and for the matching contribution). RRSP contributions made in the first 60 days of a year are also deductible on the prior year’s tax return.

If the CPRSP payment is received in March – December 2011, the amount will be income to you in 2011 and you can claim an offsetting RRSP deduction in 2011 if you have enough RRSP contribution room.

If the CPRSP payment is received in January / February 2012, you can claim the RRSP deduction on your 2011 or 2012 tax return. The CPRSP benefit is included in your income in 2012.

In order to ensure that the CPRSP benefit is paid into your RRSP within the first 60 days of the year, the BCMA must receive your application by around Jan 20 of that year. As discussed above, the deadline for this year is January 23, 2012.

Another deadline to keep in mind is the year in which you or your spouse turns 71. December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP. You can contribute to a spousal RRSP until December 31 of the year they turn 71. To ensure that the CPRSP benefit is deposited into the RRSP before December 31, the BCMA must receive your application in the first week of December. The deadline for 2011 was December 5, 2011.

Spousal RRSP

A spousal RRSP is an RRSP that is owned by your spouse to which you make the contributions. This shouldn’t be confused with your spouse’s RRSP, which is a plan owned by your spouse to which they make the contributions. You get a deduction for contributions made to a spousal RRSP. You do not get a deduction for contributions made to your spouse’s RRSP.

CPRSP benefits and the matching contributions can only be made to your RRSP or a spousal RRSP. If you want the contributions to go to a spousal RRSP, be very specific when making the contributions. I often see contributions intended for the spousal RRSP mistakenly made to the spouse’s RRSP.

Administration Fee

If you are not a member of the BCMA when the entitlement is allotted, an administration fee is payable for each benefit year being claimed.

You will receive a T4A slip showing the full amount of the CPRSP benefit claimed as income, but the benefit amount less the administration fee will be deposited to your RRSP. You will receive an RRSP receipt for the net amount deposited to your RRSP account, and a receipt from the BCMA for the administration fee.

Make sure you provide your accountant with the administration fee receipt to ensure a deduction is claimed on your tax return. As most doctors are members of the BCMA, many accountants are not aware that there may be additional fees to be claimed by non-members.

Withdrawals

To participate in the CPRSP, you must agree that you will not withdraw any CPRSP deposits, matching contributions or accumulated investment earnings on the CPRSP related funds until you retire from active medical practice in British Columbia. Withdrawing any CPRSP related funds from your RRSP prior to retirement will make you ineligible to claim future CPRSP benefits.

You are not allowed to withdraw any CPRSP related funds from your RRSP for any reason, including removal of overcontributions and participation in the Home Buyers’ Plan and Life Long Learning Plan.

Overcontributions

For most doctors, participation in the CPRSP consists of contributions to your personal or spousal RRSP. The benefit available is determined by the BCMA based on your practice type and eligible earnings.  However, the amount you can actually contribute to an RRSP is determined by your earned income including salary and self-employment earnings. The RRSP contribution limit for 2011 is the lesser of $22,450 and 18% of your earned income, plus your unused contribution room from prior years.

When your practice is incorporated, your personal earned income is usually the salary you receive from your company.  If you are receiving a small salary in conjunction with dividends or utilizing a dividend only remuneration strategy, you may not be receiving enough earned income to generate the required RRSP contribution room to fully use the CPRSP.

A physician with the maximum 2011 CPRSP entitlement ($4,324 basic, $3,430 length of service) must be able to contribute over $12,000 to the RRSP, requiring earned income of $67,000 in the previous year.

If you over contribute to your RRSP, the excess contribution over $2,000 is subject to a 1% per month penalty until removed, or until sufficient contribution room is generated in the following years.  You have to take care when removing excess contributions to avoid breaching the terms of the CPRSP – withdrawing CPRSP payments, matching contributions, or income earned on the contributions can result in disqualification from future participation in the plan.

On the other hand, unclaimed CPRSP entitlements can only be carried forward for 3 years before they are lost forever.

Your overall remuneration strategy from your company must be managed to ensure you are maximizing all of the benefits available to you.

John Moore, accountant for doctors, dentists, lawyers and other business professionals, Vancouver, British Columbia

About John Moore

I am a Chartered Accountant based in Vancouver, BC who helps doctors, dentists, lawyers and other business professionals keep more of what they earn. I provide tax, accounting and financial planning services for professionals and business owners.
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