Simple planning makes retirement easier

For First Nations people who contribute to a pension plan and have non-taxable income, there are several important things ‘to do’ before retirement begins.
If the above situation accurately describes your situation, there are several things to do before you actually retire and begin withdrawing from your pension savings.
1) See your financial advisor. A financial advisor can help you to decide which course of action is right for you. For example, when you retire, there are a number of options you must choose.
What will you do with your money? Will you purchase an annuity, transfer to a LIRA, a LIF or a LIRF? Each option has positives and negatives associated with it.
Your Financial Advisor can also help you to design an appropriate retirement income portfolio to help you meet your cash flow needs.
2) Get a letter from your employer indicating that you have contributed to a pension plan while earning non-taxable income.
This is very important for First Nations persons because in order to establish that your pension retirement income is non-taxable, you must be able to verify that you were making contributions to the company pension plan while earning ‘Indian Act’ income.
For those who have worked for multiple employers, I suggest that they get letters from each one of those employers indicating the same.
If some of the value in your pension account was from a previous taxable job, then hopefully you have not combined the taxable and the non-taxable base pension contributions into one pension account.
If you have, however, the amount of pension income you will be able to withdraw with no tax consequences will be pro-rated.
In other words, if you worked 30 per cent of your career off-reserve and 70 per cent of your career on-reserve, then your income will be taxed at 30 per cent of what it would be when compared to a fully-taxable individual.
3) Write a letter to the CRA. In this letter, you should include a front and back copy of your status card and the letter itself should indicate that you are a status Indian and plan to begin withdrawing from your pension savings.
You should indicate that in accordance with current CRA policies and section 87 of the Indian Act, your pension income should be non-taxable. Therefore, you are requesting a letter indicating that whichever financial institution that manages your pension savings be exempt from withholding tax on the income you withdraw.
If this step is not completed, then all financial institutions are required to withhold tax for all income that is withdrawn from pension accounts. The person then has to attempt to get back their taxes from Revenue Canada.
This is much more difficult than getting an advanced tax ruling before you retire, in my opinion.
Normally, I recommend that persons begin the process listed above at least six months before they retire. The purpose of the letters is to firmly establish the two key criteria that CRA uses to determine whether your pension income is non-taxable.
First, you must be status and you must be contributing to a pension plan while earning exempt income. If these two criteria are met, then CRA should answer your letter in the affirmative, barring a change in legal interpretation regarding Section 87 of the Indian Act. If you have further questions, you can visit the CRA website or speak to your financial advisor.
It usually takes Revenue Canada several weeks to respond along with the time taken to write the letters and direct them appropriately.
In some cases, CRA may request additional information and then you may be required to provide that information.
This article is supplied by Gordon Keesic, an Investment Advisor with RBC Dominion Securities Inc in Thunder Bay, Ontario. Member CIPF. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.