Let’s face it, taxes aren’t the most exciting topic. But, it’s important to understand the connection between paying for your leave, your taxable income and your RRSP contribution room. Let’s start with the April 30 deadline.
You have until April 30 of the year following the end of your leave to let us know if you want to pay for it. This will make your tax situation simpler. Think of April 30 like a best before date.
If your leave ends in 2018, its best before date is April 30, 2019.
You still have five years to make payments, but if you wait to tell us you plan to pay until after April 30, your tax treatment gets a bit more complicated.
Before April 30
I told you before the April 30 deadline. Now what?
If you tell us you intend to pay for your leave before the April 30 deadline, you won’t need approval from the Canada Revenue Agency (CRA).
We’ll calculate a pension adjustment for each calendar year in which your leave fell. This reduces your RRSP contribution room, whether you pay for all, some or none of your leave.
If your leave started in September 2016 and ended in August 2017, then it spans two calendar years. You’d get separate pension adjustments for each of those two years.
If your pension adjustment is more than your RRSP contribution room, your contribution room will go to zero the following calendar year.
Why is my pension adjustment a different amount than the cost of my leave?
The cost of your leave will always be less than your pension adjustment. This is because the expected future value of your pension is generally more than the actual cost of your leave.
The bottom line
When you’re working and contributing to the plan, you get pension adjustments.
Once you tell us you plan to pay for your leave (or you make a payment), we’ll send you an additional pension adjustment for each year your leave spanned. This will come as a T4A.
If your leave started in August 2016 and ended in September 2017, you’ll get additional separate pension adjustments for each of 2016 and 2017. If you’ve already filed your taxes for those years, fill out this form and file it with the CRA.