In the final days of Liberal rule, members of Parliament and the Senate pushed through an interesting piece of legislation that could have a significant impact on retirement planning strategies for business owners.
The Act on the employee protection program received Royal Assent on 25 November 2005, without public consultation or amendments, just two days before the failure of the minority Liberal government’s confidence motion.
The bill was adopted so quickly that the Senate standing committee returned the bill without amendments, provided that it would enter into force only on June 30, 2006, to allow time for review of the bill and public consultations on related proposed regulations. .
“We went through it very quickly because it was a very popular bill. From a political point of view, this is obviously a very positive bill. The theory behind this is good,” says Ralf Hensel, senior advisor to IFIC.
Among other things, the Act amends the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act, the Canadian equivalent of Chapter 11 in the United States, to protect unpaid employee wages in the event of a company declaring bankruptcy.
Most notable for financial planners, however, is the fact that the bill also excludes RRSPs and RRIFs from the list of assets that may be seized by creditors in bankruptcy proceedings.
In addition to this rollback, the bill included two anti-avoidance proposals, including a cap on the amount protected in an RRSP if a client declares bankruptcy and possible “lock-up” mechanisms that could be added to the legislation at a later date when the Senate has the opportunity to amend it. consideration. Details of both proposals – whether the limit is a “hard limit”, an amount specified in the regulations or based on a mathematical formula; nor are there rules specifying how customers can liquidate blocked assets.
IFIC says the bill “begins the process of putting all registered retirement savings plans and registered retirement funds on the same level playing field as both employer-sponsored registered retirement plans (RPPs) and insurance-based products such as segregated funds and insurance deposits RRSP and RRIF. “Given this, we are concerned that the bill in its current form does not go far enough.”
In its list of recommendations, the funds industry group states that all RRSPs and RRIFs should be generally exempt from garnishment and that the exemption should not be limited to situations where the debtor is bankrupt.
Hensel admits that among the recommendations, this first provision will probably not be included in the consultation process. “I think the only issue in our letter that won’t be addressed very quickly is the first (recommendation), where we believe protection should be extended to non-bankruptcy insolvency situations,” he says. “But this is a provincial matter. To what extent does the Senate have power to influence the provinces? We’ve included it here because we want to make sure everyone understands that pensions and insurance products still offer more protection.”
“It’s just a proposal. Perhaps this will be added to the regulation, but not necessarily. I think it’s likely you won’t see them (in the staging),” Hensel says. “We believe that general creditor protection in bankruptcy is sufficient. Fraudulent transfer rules, preferences and reviewable transaction rules – there are already many of them.
“We believe that any potential abuse by debtors has already been adequately addressed in this way. In our opinion, there are currently no investment funds or banking products that could be blocked in this way to create a complex blocking system. You would have to create a completely new set of products. It’s just too much trouble.”
Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com
(14/02/06)
