An RCA is perhaps the most effective and misunderstood tax deferment opportunity that exists in Canada today. It may be used for a wide range of situations, including small business owners, athletes, incorporated professionals, highly paid executives receiving yearly bonuses, and those approaching retirement. In 1986 it was recognized by the CRA that individuals not participating in a defined benefits plan suffered from pension discrimination. In other words, because of RRSP and IPP contribution caps, there was no effective way to use existing Canadian pensions provisions to duplicate the ability to save for one’s retirement under the defined benefits formula of: (average of best five earning years) * (number of years worked) * 2%. Without this, those not participating in a defined benefits plan may not be able to reach a full pension of 70% of pre-retirement income (known in pension circles as an 85 or 90 factor, depending upon the specific defined benefits plan).
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Hashtag: Cross Border Financial Planning, Cross Border Tax Planning
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