Question

Please build the answer based on the following text from a studying book:

Reporting Pension Contributions and Adjustments The following are some general year-end reporting guidelines employers should follow when reporting pension contributions and pension adjustments (PAs):
 employee contributions to a registered pension plan (RPP) are tax deductible; they are reported in box 20 on the T4 slip

 employee and employer contributions to a defined contribution pension plan are part of the PA that is reported in box 52

 PAs are reported on the T4 slip; however, under certain conditions the PA may be reported on the T4A slip

 employee contributions to a Registered Retirement Savings Plan (RRSP) are not reported by payroll; the employee will receive a tax receipt from their financial institution

 employer contributions to an employee’s RRSP are reported on the T4 slip in box 14 and in the Other Information area using code 40 as they are a cash taxable benefit, subject to CPP contributions and EI premiums

Question:

Your organization currently has a defined contribution pension plan with employees contributing up to 3% with a company match. Effective with the first pay of the new year, new employees will no longer be enrolled in that plan. Instead, they will be enrolled in the new Group Registered Retirement Savings Plan (RRSP) with the same contribution options. In your own words, explain the difference in the T4 information slip reporting for these two groups of employees.

Answer 1

“Defined Contribution” pension plan contributions arise from what CRA refers to as ‘pensionable earnings’ and taxable or tax-exempt employment income qualifies as such. Whether an employees’ income is taxable or tax-exempt, there are inherent benefits for everyone. For taxable employees, there’s tax relief by way of their personal contributions. In addition, pension money accrues tax-sheltered while in the pension but taxable when withdrawn as income. For those with tax-exempt income, there’s no contribution tax-relief (because income is tax-exempt) and when money is withdrawn from the pension, it’s tax-exempt. Income reporting slips, T4’s, have two boxes in which pension contributions can be reported; specifically, boxes 20 and 52. Box 20 represents employee contributions only. Box 52 represents the culmination – the sum – of all employee and employer contributions and is referred to as a “Pension Adjustment” or PA. Both boxes have applicability and specifically to those whose income is taxable

Registered retirement savings plan (RRSP) income refers to money you withdraw from or receive out of an RRSP. This income will be shown on a T4RSP, Statement of RRSP Income slip.

If the money you received relates to:

• a spousal or common-law partner RRSP, see Withdrawing from spousal or common-law partner RRSPs;
• funds withdrawn under the Home Buyers' Plan, see Home Buyers' Plan (HBP); or
• funds withdrawn under the Lifelong Learning Plan, see Lifelong Learning Plan (LLP).

Annuity payments shown in box 16 of your T4RSP slip may qualify for the pension income amount on Line 314 – Pension income amount.

On line 129, enter the total of amounts shown in boxes 16, 18, 28, and 34 of your T4RSP slips.

Also include the amounts from boxes 20, 22, and 26, unless your spouse or common-law partner made a contribution to your RRSP in 2014, 2015, or 2016. If this is your case, see Withdrawing from spousal or common-law partner RRSPs first.