Registered Pension Plan
Contributions to a registered pension plan
are not considered taxable income to the employee as long as the amount
contributed is within the limits established by law. The goal is to establish
limits in such a way that all employees are treated the same.
To gain the tax exempt status, the pension plan must be registered. Briefly the
conditions that must be met for a plan to be registered are:
- The primary
purpose of the plan is to provide payments to retired employees.
- The benefits
provided are those required by provincial governments.
- Benefits must
start for the employee by age 71.
- No rights of the employee may be assigned except for marriage
- Amounts of the benefits must be in accord with requirements of the
- The plan must meet regulatory requirements of either defined benefit or defined contribution
- The plan must be assumed to continue and not be
There are two types of registered pension plans: money purchase plans defined
contribution and defined benefit plans. Contributions to a money purchase plan
are a set amount as determined by regulation, both for current and past service.
For a defined benefit plan there is a maximum lifetime benefit which is the
- 2% of highest
average compensation times the number of years of service
- the defined
benefit limit for the year times the number of years of service.
Although employer contributions to a Registered Retirement Savings Plan (RRSP)
are a taxable benefit to an employee, there is a corresponding deduction which
means that no withholding need be made from the employee. The total contribution
into the RRSP that may be made by the employer and employee is the amount that
the employee may claim as an income tax deduction in that year.