On the cusp of a new RRSP season, advisors and their clients have a number of legislative changes to consider — from how much can be invested and what assets are allowed to how long plans can be used.

To start, the annual RRSP contribution limit rises to $19,000 for 2007 — or 18% of earned income, whichever is lower — from $18,000 in 2006. But that isn’t news. The escalation in contribution limits has been scheduled for some time and is set to continue rising by $1,000 a year to $22,000 in 2010. What is new is that the limits on how long taxpayers can save and what they can put into their savings plans were both changed in the 2007 federal spring budget.

That budget, which was officially passed in June, raises the age limit for RRSP contributions to 71 from 69. Taxpayers were formerly required to convert their RRSPs into withdrawal plans (an RRIF or a qualifying annuity) at the end of the year in which they turned 69. Now, that won’t have to occur until the year in which the taxpayer turns 71. The measure — which applies to registered pension plans and deferred profit-sharing plans as well as RRSPs — is designed to help older clients who want to continue to work and save for retirement.

Not only does this change benefit workers who turn 69 in 2007 — they can keep contributing to an RRSP for another two years — but it also benefits those who turn 70 or 71 this year and have already converted their RRSPs into RRIFs. Normally, RRIF owners must withdraw a minimum amount each year. This requirement is waived for the next two years for RRIF owners who turn 70 this year, and is waived for this year for those who turn 71 this year.

Also, clients who have converted but won’t turn 71 for the next two years can resume using RRSPs. They can either open a new RRSP to utilize their new contribution room, or they can convert their RRIF back into an RRSP until they hit the new deadline at which the RRSP must be converted into an RRIF.

In addition to changing the mandatory RRSP conversion date, the spring budget also expanded the list of assets that can be held within an RRSP. The change, which became effective with the tabling of the budget in March, expanded the list of qualified investments that can be held in RRSPs and other registered plans to include most investment-grade debt and publicly listed securities.

Under the new rules, any debt with an investment-grade rating — provided it is part of at least a $25-million issuance — can now be included in an RRSP, as can any security, apart from a derivatives contract, listed on a “designated stock exchange.” The budget also altered the procedure for discriminating among exchanges for tax purposes.

The change to the roster of qualifying assets is intended to provide clients holding registered plans with greater investment choice and opportunities to diversify — notably, by removing obstacles to investing in foreign-listed trust and partnership units and Canadian dollar-denominated bonds issued by foreign entities.

One element that was not in the spring budget was a broader form of income splitting. So far, the government has limited the applicability of income splitting to pension income. While this falls short of what some hoped, it does impact the utility of spousal RRSPs — which had been a common way to split income before the policy change. (See page B11.) The new regime doesn’t make spousal RRSPs entirely irrelevant, but it does limit the situations in which they are likely to make sense.

Apart from income splitting, another retirement-savings measure that some have been hoping to see is a new after-tax savings vehicle — commonly known as tax-prepaid savings plans — that would encourage more saving by lower-income workers. The previous administration in Ottawa touted TPSPs as an RRSP alternative. Yet, the government of the day never actually went ahead and implemented TPSPs.

But the idea hasn’t disappeared. Indeed, the Investment Funds Institute of Canada is calling for the adoption of TPSPs with a matching grant in its latest pre-budget submission, saying such a measure would encourage all workers to save more for retirement but particularly lower-income workers, who aren’t that well served by RRSPs.

@page_break@It seems unlikely the current government will take up the idea. It has promised more personal income tax relief as part of its agenda. It also has plenty of room to cut taxes, given the large surpluses the economy continues to generate. However, TPSPs don’t appear to be on the radar. Instead, the government has indicated it will follow through with the promised second cut in the GST to 5%, a move that will be very expensive and will probably limit the feds’ latitude to take on other bold initiatives.

Assuming the RRSP remains the dominant retirement savings vehicle, it is worth noting that there are other changes in store for it. Jamie Golombek, vice president of tax and estate planning at AIM Funds Management Ltd. in Toronto, notes that — along with the big changes to the age limit in the latest budget — there is also legislation working its way through Parliament that aims to provide protection for RRSPs against creditors. And, in Ontario, there are new rules governing the unlocking of locked-in savings vehicles.

At the federal level, legislation was passed in late 2005 that would, among other things, extend protection for RRSPs against credi-tors. It proposed that all RRSPs and RRIFs be exempt from seizure in a bankruptcy proceeding, subject to certain conditions. However, that bill was never proclaimed, and a second bill that has since been introduced abandons a couple of the conditions that were to apply to RRSP protection. (See page B18.)

According to a bulletin from Fasken Martineau DuMoulin LLP, the new legislation — if passed and proclaimed — would affect RRSPs and RRIFs in two ways: plans that are based on annuities issued by life insurers, which are immune from creditor seizure under provincial law, would be beyond the reach of a bankruptcy trustee; and other kinds of RRSPs and RRIFs that are not protected by provincial law would also be beyond a trustee’s reach, apart from contributions made in the 12 months immediately preceding the bankruptcy.

This legislation was passed in the House of Commons and received first reading in the Senate in June. The bill is expected to be closely examined by a Senate committee this fall. However, as Investment Executive went to press, this had yet to happen.

As for Ontario, it has adopted a number of reforms to locked-in retirement savings vehicles such as life income funds, and several of those changes affect RRSPs. Effective Jan. 1, 2008, spouses of deceased owners of various locked-in vehicles will be able to transfer their survivor benefit directly to an RRSP or RRIF; the owners of locked-in accounts will also be able to transfer money to RRSPs/RRIFs under certain conditions; and owners of a new LIF that is being introduced in Ontario will have a one-time opportunity to transfer as much as 25% of its assets into an RRSP.

All these actual and potential reforms spell plenty of changes to the RRSP landscape for the current year. IE