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Members in pension phase (legacy method)

Members in Pension Phase may be entitled to tax-free income.

If your Fund has a member or members in Pension Phase for all or part of the tax year being processed, you will need to make adjustments on the Tax Return.

You will need to calculate the portion of income that is not liable to income tax and enter this at Label Y: Exempt current pension income.

If a member is in Pension phase for the entire year, all income generated from that member’s share of fund assets, plus all income generated from any segregated assets held by that member, is tax free.

If a member is in Pension phase for only part of the year, a percentage of the income generated from that member’s share of fund assets, plus income generated from any segregated assets held by that member, is tax free. The applicable percentage is determined by calculating the number of days the member is in Pension phase and dividing by 365.

(Note: It is the income generated by assets owned by a member in pension phase that is tax free, not the actual pension paid to the member – which is also tax free and therefore excluded when calculating personal income tax for that member.)

Mclowd calculates the percentage of assets attributable to each member and reports this in the Member Weighted Average report.

EXAMPLE 1:

A Fund has two members – Tom and Joan. Tom was in Pension Phase for 200 days of the tax year being processed.

Tom has a segregated asset worth $120,000.

Mclowd has calculated that the Fund earned $49,000 from jointly owned assets and $6,600 from Tom’s segregated asset.

The MWA report shows that Tom owns 58% of jointly owned assets.

Therefore, 58% of the income generated on jointly owned assets ($49,000 x 58% = $28,420), plus the income from the segregated asset ($6,600), attributes to Tom. Income attributable to Tom is $35,020.

As Tom was only in pension phase for 200 days, the tax-free portion of the Fund’s income is:

$35,020 x (200/365) = $19,189.04

While verifying the figures Mclowd inserted in Section B: Income, you should enter the amount of $19,189 at Label Y: Exempt current pension income.

EXAMPLE 2:

A Fund has three member – Jack, Sam and Jenny. Jenny is 68 and in pension phase. Both Jack and Sam are still in accumulation phase.

The Fund has no segregated assets.

The MWA report shows that Jenny owns a 42% share of the Fund assets.

The Fund has an income for the tax year of $80,100.

Jenny’s share is $80,100 x 42% = $33,642

$33,642 is therefore tax exempt.

The amount of $33,642 should be entered in Section B at Label Y: Exempt current pension income.