Reporting a pension adjustment

From: Canada Revenue Agency

A pension adjustment (PA) is an individual’s total pension credits for the year. A pension credit is the amount of benefits that an individual earns during a year from a DPSP and an employer-sponsored registered pension plan. If an individual only earns benefits in a DPSP during the year then the pension credit will also be the PA for the year.

The PA is equal to the amount of annual contributions that an employer makes to a DPSP during the year on behalf of the individual, plus any forfeited amounts that are reallocated to the individual for his or her benefit, minus any refunded amounts due to overcontribution. The plan terms will set out the amount of contributions that are made to the plan, as well as how forfeitures, if any, are reallocated to beneficiaries under the plan. The PA reduces the individual’s RRSP contribution room for the following year.

A PA is reported by the employer on box 52 of the individual’s T4 slip, Statement of Remuneration Paid. The contributions and reallocation of forfeited amounts must be based on the plan terms and cannot exceed specific limits in the Income Tax Act. Subsection 147(5.1) of the Act limits an individual’s pension credit to the lesser of half of the money purchase limit for the year or 18% of the individual’s compensation.

Example 1

Shiyan is a beneficiary of her employer’s DPSP. The employer does not sponsor a registered pension plan and so the only retirement plan is a DPSP. The plan terms state that the employer will contribute 1% of member earnings to the plan out of company profits. The plan has immediate vesting and so employees do not forfeit employer contributions at any time. 

In 2018, Shiyan earns $60,000 with her employer. The employer contributes $600 (1% of $60,000) to the DPSP on her behalf in 2018. Her 2018 pension credit and PA is $600, and will be reported by the employer in box 52 of her 2018 T4 slip. Shiyan’s 2019 RRSP deduction limit will be reduced by $600.

The employer must also make sure that the 2018 pension credit of $600 is not above the limit in subsection 147(5.1) of the Act. Shiyan’s pension credit cannot be above the lesser of:

  • 18% of 2018 earnings (18% x $60,000) = $10,800; and
  • half of the money purchase limit for 2018 = $26,500/2 or $13,250

Therefore, Shiyan’s PA of $600 is acceptable since it is below both limits.

If the employee is a member of more than one DPSP, or a DPSP and a RPP offered by a participating employer or a related employer, then the pension credits from both plans are added together to become the individual’s PA. The PA for the year cannot exceed the lesser of the money purchase limit or 18% of compensation for the year. 

Example 2

Employer A and Employer B participate in the same DPSP. In 2018, Ali works for both employers, each of which contribute to the DPSP during the year for his benefit. The plan terms state that employers contribute 1% of the member’s earnings to the plan out of company profits.

Ali’s earnings from Employer A $30,000
Ali’s earnings from Employer B $50,000

Legislated limit is the lessor of:

  • 18% of $80,000 = $14,400
  • half of the 2018 money purchase limit = $26,500/2 or $13,250

Pension adjustment for Employer A = 1% x $30,000 = $300
Pension adjustment for Employer B = 1% x $50,000 = $500
Ali’s 2018 PA for Employer A is $300 and Employer B is $500.

If a beneficiary leaves a DPSP before the end of the plan’s vesting period, a PA would still need to be calculated and reported for the year even if the member forfeits the employer contributions. However, the beneficiary may be entitled to a pension adjustment reversal. The plan terms will state whether the forfeited contributions are paid back to the employer or reallocated to other beneficiaries in the plan.

Example 3

Lily was a beneficiary of a DPSP that was set up by her employer. The plan terms state that the employer will contribute 1% of net profits and that forfeited amounts are reallocated to the beneficiaries. In 2018, 

Lily’s earnings = $60,000
Legislated limit is the lesser of:

  • 18% of $60,000 = $10,800
  • half of the 2018 money purchase limit $26,500/2 = $13,250

Net profits = $850,000
Forfeited amount allocated to Lily = $200
Employer’s contribution (1% x $850,000) = $8,500
Lily’s pension adjustment = employer’s contribution plus the forfeited amount = $8,500 + $200 = $8,700. 

Amending PA amounts

If the employer made an error in reporting PAs for prior years, the employer must correct the error and report the correct amounts.  

If you are correcting amounts within the last four years, you must file amended T4 slips.

For any year prior to the last four years, a list must be sent in to us. The list will include:

  • Name
  • Social insurance number
  • Original PA
  • Amended PA

Depending on your province, send your list to one of the following addresses:

For Ontario, Prince Edward Island, Newfoundland and Labrador, Yukon, Nunavut and Northwest Territories and the following Quebec cities; Montreal, Quebec city, Laval, Sherbrooke, Gatineau and Longueuil send it to:

Canada Revenue Agency
Sudbury Tax Centre
Pension Workflow Team
PO Box 20000, Station A
Sudbury ON  P3A 5C1

For Manitoba, Alberta, Saskatchewan, British Columbia, Nova Scotia, New Brunswick and the remaining areas in the province of Quebec not listed under the Sudbury Tax Centre, send it to:

Canada Revenue Agency
Pension Workflow Team
Winnipeg Tax Centre
Post Office Box 14000, Station Main
Winnipeg, MB  R3C 3M2

Any time that a PA amount is amended, the RRSP contribution room is affected. If a beneficiary has used all of the contribution room, the adjustment may result in an over-contribution where taxes are owed unless money is withdrawn from the RRSP account.

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