Taxes and Your Pension

Each year as you prepare your documentation for tax season, here’s what you should keep in mind!

Tax information relevant to your pension can be broken down into two categories – tax savings while contributing to the plan and tax deductions when receiving your pension:

• While you are working:

  Tax deductible contributions
  As an active member of the Public Service Pension Plan (PSPP), you receive immediate tax-savings on your pension contributions. The pension contributions you make are deducted from your gross income, which lowers your overall taxable income for the year. This deduction takes no effort from you! Your tax-deductible contributions are reflected in box 20 of T4 slip from your employer when it’s time to file your return.

  Your pension adjustment is also reported on your T4. A pension adjustment reflects the value of the benefit you earned in the past year under the Plan. The amount is included in box 52 of your T4 slip. This doesn’t affect your reported income, but it reduces your Registered Retired Savings Plan (RRSP) deduction limit for the following year. That’s because you’ve contributed, and earned a retirement benefit, as a result of your participation in PSPP.

  Purchase service?  Your contributions to purchase prior service may also be tax deductible. The receipt you receive after your purchase will also serve as your tax receipt, which you can use to claim the deduction. If you purchased your service by issuing personal cheque, that receipt will come from us!

• After you retire:

  Income tax
  In retirement, your pension income is taxable. This means that income tax is deducted from your gross monthly pension payments before it is deposited in your account.

  Like you did with your working income, you are required to report your pension income when filing your taxes. And just like the T4 tax slip you previously got from your employer, we will provide you with a T4A which you need to include when completing your taxes. This slip is mailed to you by our pension payroll partner, CIBC Mellon.

  Income splitting
  We all want to keep more money in our pocket, but paying tax is a reality we can’t avoid. As a pensioner, there are ways to minimize your tax by way of pension income splitting.

  Income splitting is an option when filing a joint tax return. The spouse with the higher retirement earnings can allocate up to half of those earnings to the lower earning spouse. This spreads out the earnings and may lower the overall tax amount paid by the couple. Please be aware not all retirement income is income splitable. Depending on your age and the age of your spouse, certain types of income will qualify for pension income splitting.

  Talk to a tax professional to explore your options and if pension income splitting is beneficial to you.

• If you’ve received a refund:

  No income tax will be deducted from any refund or payment to a registered retirement savings plan (RRSP), or locked-in retirement account (LIRA), life income fund (LIF), the registered pension plan (RPP) of a new employer.

  If your refund or lump-sum payment exceeds your RRSP deduction limit, the outstanding amount will be subject to income tax deductions.

  You’ll receive a T4A slip for the cash payment portion from our pension payment partner, CIBC Mellon.

  More questions about your Provident10 pension? We’re here to help! Contact us.