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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:

  1. The primary purpose of the plan is to provide payments to retired employees.
  2. The benefits provided are those required by provincial governments.
  3. Benefits must start for the employee by age 71.
  4. No rights of the employee may be assigned except for marriage dissolution.
  5. Amounts of the benefits must be in accord with requirements of the regulations.
  6. The plan must meet regulatory requirements of either defined benefit or defined contribution plans.
  7. The plan must be assumed to continue and not be revoked. 

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 least of:

  1. 2% of highest average compensation times the number of years of service
  2. 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.

Last updated: 03-04

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