The Federal Government has been pulling out all the stops to fend off the on-going economic downturn.
 
In November, 2008 they floated a brand new idea to relieve pensioners from potentially selling their equity investments in a severely depressed market in order to meet the annual, legislated RRIF withdrawals. In effect, the new law retroactively gave a one-time 25% reduction to the mandatory withdrawal amount. For those who had yet to take their annual payout, they simply were allowed to withdraw the smaller 75% amount by the end of the year.
 
For the vast majority who already had taken their 2008 payout, the government came up with a simple, yet complicated idea: the 25% could be paid back! To facilitate this even more, the deadline for paying back was aligned with the regular RRSP contribution deadline for working folks - this year being March 2, 2009.
 
This means that all retirees with RRIF withdrawals - who typically haven't been able to contribute to their RRSP for years - now find themselves able to make a one-time contribution of this 25% amount by March 2nd.
 
The result of doing this will be to lower your tax bill for 2008 by the amount of the contribution times your marginal tax rate.
 
Here are a few considerations before you act on this in the remaining two weeks:
1. Can you afford to give up the cash flow from your retired income stream to contribute back the 25% amount?
 
You might use the proceeds from your 2009 required withdrawal to fund the contribution. Alternately, the contribution can be made in-kind, ie you can transfer one of your asset holdings from your non-sheltered account to your RRIF. Note that you may trigger some capital gains tax in doing this.
 
2. Is the tax reduction on this re-contribution worthwhile?
 
The answer to the second question is muddied by the pension splitting rules enacted in 2007. For couples, this allows the higher income pensioner to shift up to one-half of qualifying pension income (includes RRIFs) to the lower income spouse. Thus, if you do split pension income under this rule, and furthermore you choose to contribute this 25% amount back for 2008, in effect half of that 25% is being removed from your spouse's income, not yours. In short, you are thwarting the benefit of the pension split.

You may wish to contact us or your investment advisor to discuss this further. 

Stephanie Venn has reviewed all of our Trivest accounts and will execute this strategy for those who will benefit from this one-time tax deferral. 
 
Remember: time is of the essence.
 
In closing and as a general statement, prudent investment management should safeguard a pensioner from ever needing to liquidate severely-depressed equity holdings to make an annual RRIF withdrawal.