Taxes and Your Pension

What are the implications of your pension contributions come tax season? That’s a great question!

Here’s what you need to know:

• Are contributions tax-deductible?

  The regular, automatic contributions you make to the PSPP are tax sheltered. When you complete your income tax returns, you may claim your PSPP contributions as a deduction from your income. And, within certain limits, your contributions to purchase prior service may also be tax deductible.

• How do my pension contributions affect contributions to my RRSP?

  Under our current tax system, your pension contributions do not directly affect your contributions to any RRSPs you may have.

  It is the value of your pension entitlement earned in the tax year that will be used by Canada Revenue Agency (CRA) to determine how much you can contribute to your RRSP the next tax year. The value of pension you earned in the year is reported in Box 52 of your T4 – it’s called the pension adjustment.

  The amount that you can contribute to your RRSP in any year is 18% of the previous year’s earned income (to an annual dollar maximum), minus the pension adjustment for the previous year. The CRA will notify you, in writing, of the RRSP contribution room that you have available for the tax year.