Tag: cra

Caution: Transferring RRIFs between brokers

RobHLeave a comment

DIY investors include a growing number of RRIF holders (like me). If you want a primer on RRIFs, you can read that here. There are some strange nuances involved with moving RRIFs between brokers which may not be obvious and are not documented anywhere — or if they are, I have yet to find where.

I’ve covered parts of this topic before, (here and here) but this post attempts to summarize the weirdness so you don’t get caught unaware. It is my belief that the cautions outlined below are applicable to ALL brokers, but happy to learn otherwise, just drop me a line at comments@moneyengineer.ca, I read all my mail.

For simplicity, I’m going to refer to the “sending” broker (the broker that currently manages the RRIF) and the “receiving” broker (the broker to whom you’re transferring those same assets).

Caution 1: A sending broker cannot transfer a RRIF unless it has fully paid out RRIF minimum for that year.

As RRIF aficionados will know, at the end of the calendar year, a new “RRIF minimum” amount is calculated by the broker based on the market value of the RRIF at that time and the age of either the RRIF owner or the spouse of the RRIF owner. This is a well-known fact. What is perhaps not so well known is that the broker who holds the RRIF at the start of the year is obligated to pay out the full amount of the RRIF minimum, even if that RRIF is transferred in the course of the year1.

This has implications, especially if you attempt the transfer early in a calendar year:

  • You are going to end up with “extra” cash that you weren’t expecting. You’ll have to be prepared to do something with that money, but what? Leave it as cash? Invest it in a HISA? Invest it in an all-in-one?
  • This early windfall also means that your potential tax-free growth2 is lost.

Caution 2: Waiting past end of November to initiate a RRIF transfer runs the risk of tying up your RRIF funds for multiple months

“Fine”, you think, “if I wait until late in the year to transfer my RRIF, I can avoid the problems inherent in Caution 1”. This is what I thought, too. I was, again, wrong.

There seems to be an industry-wide pause on RRIF transfers that starts in late November and lasts until January of the following year. I’ve seen more than one mention of it. Questrade’s message when I attempted to transfer-in my RRIF to them was

“Please be advised that RRIF/LIF account transfers are subject to the industry-wide cut-off date, November 28, 2025. This cut-off date is not specific to Questrade, but is arranged and agreed upon by all Canadian financial institutions to ensure yearly payments are made in an orderly and timely manner to all account holders.”

It appears I got extremely unlucky: the transfer STARTED before November 28th, but failed to fully complete before the deadline. Performing a transfer is a multi-step process using a service called “ATON”34. You can read all about how ATON works over here.

In my case, it took until mid-February for the transfer to complete. During that time, the account was in limbo, and no payments could be made. For someone who expects to be paid monthly from a RRIF, this was a bit of a problem.

Advice: Initiate RRIF transfers before November 1.

This ought to give enough time for the transfer to complete before the cut-off date. And minimizes the amount and time you have “extra” money floating around. You can help make sure your transfer goes as expected:

  • Make sure the assets you hold are supported at both institutions. GICs are a frequent problem. So are bank-backed HISAs. If you hold assets like that, do yourself a favour and sell them before you initiate the transfer so that they are just cash.
  • If you hold fractional shares in your account5, get rid of them by selling off the fractions or buy more so that you have whole shares. From what I’ve read, fractional shares are a construct that is broker-specific and will cause issues when you attempt to transfer them.
  • Make sure you have enough cash in your RRIF so that the sending broker can pay out your RRIF minimum before the transfer begins.

Happy investing. If a transfer really goes astray, it looks like OBSI can help.

  1. This CRA link seems to be the one that states this. ↩︎
  2. Since the average gains of the market are positive, I’m always going to make the assumption that it’s better to be invested than not. You could of course get lucky and avoid a big market downturn because your RRIF cashed early, but that’s not how I think about investing. Time in the market is always better than timing the market, per Ken Fisher ↩︎
  3. “Account Transfer Online Notification”, apparently per https://cffim-fcmfi.ca/wp-content/uploads/aton-best-practices-guide-Jan-15-2021-v9.9.pdf ↩︎
  4. I am indebted to Financial Wisdom Forum users NorthernRaven and OptsyEagle for their help in understanding what went wrong in my case ↩︎
  5. Wealthsimple (for all shares/ETFs) and Questrade (for some US shares/ETFs) both offer this option. There may be others. ↩︎

Spousal Loans: A good way to split income

RobH1 Comment

Disclaimer: I am neither a tax lawyer nor a tax accountant. Engage the services of a professional if you have doubts.

For most of my working career, I earned more than my spouse did and as a result, paid more income tax, too. Spousal RRSPs are a very easy way to split income down the road1, but what about the here and now? Is there a way to shift income from one spouse to another without a whole lot of complexity2 for THIS year’s tax return?

One thing I set up a few years ago was a spousal loan. The concept is pretty simple:

  • You loan your spouse funds3
  • These funds are used by your spouse for investment in a non-registered account
  • You charge your spouse interest on that loan, which you must declare as income (and your spouse can deduct as an investment expense)
  • Your spouse gets to keep capital gains, dividends and interest payments in their name and file them on their return, and thus pay less tax than you would on those gains.

Now, of course, there is the small matter of “what interest rate do you charge”? Since the name of the game is income-splitting it’s advantageous to charge as little as possible. But before you run to the exit and give an interest-free loan, there are prescribed rates set by the CRA, found here. The rate to use is called the “The interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans” and it currently4 sits at 3%56.

The nice thing about setting up such a loan is that the interest rate is fixed at the time you set it up. I feel pretty smart knowing that my spouse is paying a rock-bottom 1% annual rate and has done so since the 4th quarter of 2020.

So how to go about it? Like all things involving the CRA, it’s good to have records, so

  • I set up a formal loan agreement dated, signed and archived. It spells out the date the loan was made, the amount, the payment schedule and so on. There’s lots of templates out there.
  • I transferred the funds to my spouse using a cheque to create a paper trail.
  • My spouse pays the interest due annually via eTransfer so there’s an email record
  • I declare the interest as income on my tax return
  • My spouse declares the interest expense on her tax return

One thing I haven’t figured out yet is when to dissolve this loan. In retirement, I’m not making more than my spouse, so perhaps it’s time to wrap up this arrangement7.

  1. And if you’re careful, you can arrange to have you and your spouse have the SAME amounts in your respective RRSPs when it’s time to convert to a RRIF. ↩︎
  2. I suppose there’s probably some way involving setting up a corporation and paying your spouse a salary, but that concept doesn’t work for everybody ↩︎
  3. Left unsaid, is that you have to have spare cash available to actually loan this money and your spouse needs a way to invest it ↩︎
  4. Q3 2025 ↩︎
  5. According to multiple sources this is the interest rate of the 3-month treasury bill sold at auction. Who knew? ↩︎
  6. If I were a betting man, I’d say this rate is likely to go lower before the end of the year. Returns need to exceed the interest rate charged for this to make sense but 3% is a pretty low bar. ↩︎
  7. Or perhaps I’ll just wait until my bonus payouts from Questrade are done. Decreasing my spouse’s holdings will have an adverse effect on the bonus being paid. ↩︎

Death, Taxes and Estates: Part 1

RobH4 Comments

I am not a lawyer, accountant or tax expert. Your situation may be a lot different than mine. Seek professional guidance if needed.

What happens to our investments when we die? Having lost both my parents in the past 2 years, I’ve (regrettably) had a lot of exposure to the ins of outs of estates and how they work.

Being Ready for the Inevitable

Fact: we’re all going to die. Pretending this isn’t true isn’t helpful to your survivors. So there are some concrete things you should have in place before that happens.

  • Have a will. Whether DIY, software-assisted1, or prepared by a suit, just get it done — here’s a nice step-by-step guide. And if you do have one, is it up to date? Take a look.
  • Have the will name exactly one executor, with alternate executors in the event your first pick isn’t available . Hearing multiple stories from multiple sources about how much extra work and delay having joint executors causes, I cannot recommend this all-too-common approach. You’re not “playing favourites” by naming one person2.
  • Make sure your executor knows how to get a hold of the will. Be very specific, and repeat this information frequently so it’s top-of-mind.
  • Make sure your RRIFs/RRSPs/TFSAs name successors and/or beneficiaries. I covered that topic in more detail here.
  • Make sure any life insurance policies name a beneficiary
  • Make sure your workplace pension3 names a survivor4.
  • Prepare a death binder5 with all assets clearly specified — provider name, account numbers, name on the account. Is the list really long? Maybe it’s time to trim that list down. Every provider on that list will create work for your executor. So if you want to be kind, keep the list of providers small. Make sure your executor knows where to find it.
  • Have a month or two of expenses in cash that is accessible by those who survive you, like in a joint chequing account. Assets held solely in your name will be frozen when you’re dead, possibly for weeks or months.
  • Set up someone (your executor, for example) as your authorized representative with CRA. This makes dealing with taxes much easier for those that you leave behind. How? Read here.

My Situation

My parents held no real estate, and all their assets were held in DIY investments (RRIF, TFSA and non-registered accounts). They each had a will and named the other as the executor with me as the alternate. They dealt with two providers — one for their DIY investments (BMO Investorline) and one for their day-to-day banking (CIBC). So in terms of complexity I think I had it pretty easy.

Dealing with the death of the first parent

My Dad’s death was not a surprise, and because of this I was able to maximize his TFSA contributions before he died. Dad did hate paying taxes.

Although my Mom was legally the executor, I did almost all the work involved. Most providers seemed to be pretty good about dealing with me once they got confirmation from my Mom. The key documents and facts you’ll be asked for in almost every encounter are the same, so have these ready each and every time:

  • Date and place of birth of the deceased
  • Date and place of death of the deceased
  • SIN number of the deceased
  • A death certificate (this is issued by the funeral home, typically)
  • The will
  • Funeral home invoice (if applying for a death benefit)

Dealing with the bank was easy. One 30 minute meeting6 and all was sorted.

As many DIY financial services providers don’t have brick and mortar locations, high quality digital versions7 are also generally accepted. In the case of BMO Investorline, I had to visit a BMO branch8 with the documents so they could send them as “true copies”. How a provider with no affiliation with a bank does this, no idea9.

In the case of any DIY investment held in the deceased’s name — those assets get frozen upon notifying the provider. This can be problematic if one is relying on those assets to say, pay rent, or pay for funeral arrangements.

The unexpected complication arose from the non-registered joint account — it didn’t just “convert” to removing one person’s name from the account — you have to open a new, individual account, involving all the same paperwork as though you were a new client, and then transfer the joint assets “in kind” to the new account. During this time, the funds were not accessible. This is beyond annoying, but I suspect this is the same regardless of who your provider is. My mom lost access to her joint account for about 6 weeks while this was settled.

Taxes for the death of the first parent

The tax return you file for a person who has died in this scenario is called (ominously) the Final Return. A person who dies is treated as though they sold all their assets on the day of death. I did not file a T3 Return10 return for my Dad, since all the assets passed through to my Mom. If he had had non-registered assets held solely in his name, I think I would have had to.

  • For a RRIF or RRSP, this means CRA assumes you sold all the holdings on the day you died and recognized it as income11
  • For a non-registered account held solely in one name, CRA assumes you sold all the holdings on the day of death and recognized any capital gains at that time.

I was able to successfully file the Final Return for my Dad using Wealthsimple’s tax software12. The Final Return cannot be eFiled — you have to print it and send it using snail mail.

Adjustments after the death of the first parent

After my Dad died and my Mom had all the combined TFSA/RRIF assets in place, we updated her TFSA and RRIF to name me and my siblings as beneficiaries by filling out a form. This proved to be helpful in reducing the tax bill a bit when she died. More on that in a future post.

  1. “willful.” seems to be a trendy option nowadays: https://www.willful.co/ ↩︎
  2. One could argue the opposite — just give the duties to your least favourite relative as a last vengeful act ↩︎
  3. Some workplace pensions provide death benefits and/or an ongoing survivor pension, but only if you take the trouble to name a survivor in that pension. ↩︎
  4. And if you do, I’m envious 😉 ↩︎
  5. Paper is probably less trouble than trying to provide a file location/passwords, but YMMV. ↩︎
  6. Prearranged online of course. You can’t just walk into a branch to do anything these days. ↩︎
  7. You’ll get good at this workflow or go crazy trying. Take photo on phone, airdrop to laptop, compress/convert image so it can get through email… ↩︎
  8. Do NOT assume that the brokerage has anything to do with the bank with whom they share a logo. I learned this the hard way with BMO/BMO Investorline. ↩︎
  9. Maybe notarized documents? Let me know at comments@moneyengineer.ca. ↩︎
  10. AKA “Estate Return”. A person who dies becomes a new tax entity, typically named Estate of <dead person> ↩︎
  11. Which is why you name a successor for your RRIF — this tax penalty is thereby avoided ↩︎
  12. It was because Intuit Quicktax could not handle this scenario that I ended my decades-long relationship with them. ↩︎