IFIC calls for tax fairness on retirement savings

The Investment Funds Institute of Canada (IFIC) is calling on Parliament to improve the tax treatment of retirement savings, and suggests that more incentives need to be provided.

“We are at a crossroads where many more people will be retiring and living in retirement than ever before. If we don’t choose a path that helps people provide more for their own retirement, they may have to rely more on government programs and future generations of taxpayers,” says Joanne De Laurentiis, IFIC president and CEO.

“Canada has done a good job of balancing government, employer and personal responsibility for retirement savings and, as Canada’s demographics change, we’d like to see this fine balance preserved.”

In a letter to the Standing Committee on Finance, the group says that the rules governing RRSPs should be altered to allow income-splitting for those who draw upon the funds before age 65.

This is currently permitted for pension income, and since the RRSP was created to serve as a private pension plan, the move would provide a level playing field between retirees with a employer-sponsored pension and those without.

When it comes time to drawdown assets from retirement savings through a RRIF, retirees currently face a minimum annual withdrawal of 4%. This minimum should be lowered, IFIC says, to reflect the longer lifespan future retirees can expect.

The group calls for changes to the treatment of dividend income, recommending the elimination of the dividend gross-up from the “net income” calculation for computing income-tested benefits for OAS and GIS. At the same time, the government should preserve the dividend tax credit when eligible dividends are paid to registered plans.

IFIC also calls for the CRA to allow $5,000 of net capital losses to be applied against all sources of income starting in 2009, and an end to the “unfair excise tax treatment of group and individual RRSP savings.”

(09/03/09)