Refunding LIRAs and LIFs
Note that...
To obtain a cash payment (refund), an application must be made to the financial institution. All refunds are taxable. However, it is possible to defer taxation if the amounts can be deposited directly in an
RRSP or a registered retirement income fund (RRIF).
A holder can withdraw the entire amount in his or her locked-in retirement account (LIRA) or life income fund (LIF) on the condition that the total amount accumulated in the retirement savings instruments mentioned is not more than 40% of the maximum pensionable earnings under the Québec Pension Plan for the year of application, that is, 20 440 $ in 2013.
Savings instruments affected:
- LIRAs
- LIFs
- Defined contribution pension plans or the defined contribution component of a defined benefits pension plan
- Simplified pension plans (SIPPs)
- Locked-in RRSPs
A helpful example...
Patricia is 66 years old on 31 December 2012. On 15 January 2013, she applies for and withdraws a life income of 1 606 $ from her LIF account, which has a total value of 22 000 $.
Since Patricia's new LIF balance is 20 394$ and she does not have any other savings vehicles from the list above, she can immediately withdraw the balance of her account, which is now less than 20 440 $, that is, 40% of the MPE for 2013 (40% x 51 100 $).
A holder can demand a refund of the balance of his or her LIRA or LIF in a single payment at any age, if:
- the investments have come to their agreed-upon maturity
and
- he or she has not lived in Canada for at least 2 years
Worth knowing about ...
- amounts withdrawn are taxable
- if a refund is made before investments have matured, fees can be charged
When a holder dies, the balance is paid to his or her spouse, or if there is no spouse or the spouse has renounced the account, to the heirs. The amounts withdrawn are taxable, unless exemptions under taxation rules apply.
Holders who have reduced life expectancy because of physical or mental disabilities are entitled to refunds, in part or in whole, of their LIRAs if they provide a medical certificate to their financial institution.
To be entitled to a refund, holders must meet the 2 following conditions:
- have a physical or mental disability
and
- have a reduced life expectancy because of that disability
Financial institutions can neither tighten nor loosen those restrictions.
The refund is made in a single or in a several payments
- Refunds in the event of disability must be made regardless of the agreed-upon term of investment. However, penalties may be provided for under the agreement if investments are withdrawn before maturity.
- This clause does not apply in the case of an LIF, which means that a holder who is deemed to be disabled can transfer his or her LIF to an LIRA for refund purposes no later than 31 December of the year in which he or she reaches age 71.
Basic concepts about disability and life expectancy
Condition 1 - Disability
Since disability in this case is not defined by law, the term must be defined as it is commonly understood.
- Disability: the state of a disabled person, and a decreased ability to work (by at least two thirds)
- Disabled: not being able to lead an active life or to work because of one's poor health, infirmities, injuries, etc.
Referring to the information above, a person with health problems which do not affect his or her ability to work cannot be considered disabled.
Condition 2 - Reduced life expectancy
Reduced life expectancy does not necessarily mean that the reduction must be significant.
Beware of fraudulent withdrawals
The Régie urges you to be on your guard with respect to classified ads that propose various tax-free ways to withdraw money from your LIRA or LIF, such as by purchasing stock shares or a loan. Those methods are fraudulent and can have significant tax effects 
, in addition to robbing of your money. To find out more, please consult the Fraud in classified ads section on the Web site of booklet from the Autorité des marches financiers du Québec.
To find out more...