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

Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP) are both retirement savings plans that are registered with the Canada Revenue Agency (CRA). RRSPs are individual retirement plans, while RPPs are plans established by companies to provide pensions to their employees. They are comparable to defined-contribution savings plans and defined-benefit pension plans in the United States

Registered Retirement Savings Plan

A registered retirement savings plan is a retirement saving and investment account for employees and self-employed people in Canada. Contributions are made pretax, but distributions are taxed at the marginal rate. If someone is taxed at a rate of 30% and he or she contributes $1,000 to an RRSP, the entire sum is applied to the account. In contrast, if the individual took those funds in wages, he or she would pay $300 in income taxes.

Individuals are allowed to contribute up to 18% of their earned income annually to their RRSP, up to an annually adjusted cap ($27,830 for tax year 2020).

Registered Pension Plan

Contributions to both RRSPs and registered pension plans are not taxed for Canadian residents (those living abroad may face local taxes). Individuals and their employers may both contribute to RPPs, and neither's contributions are taxed.



Money earned within both RRSPs and RPPs is not subject to income or capital gains taxes. However, withdrawals from both plans are taxed as income.

Maximum contributions on RPPs vary based on which type of RPP is being used. There are two types of RPPs: defined benefit RPPs and money purchase RPPs. In defined benefit plans, the pension amount is known and does not change, but the contribution amount varies. These plans do not have a yearly maximum contribution limit.

Money purchase or defined contribution plans do not have a set or predictable pension amount, but employees know how much they are expected to contribute. Maximum annual contributions to money purchase RPPs are the same as they are for RRSPs.

T4 information slip

Since employee is employed during the year, he’ll receive a T4: Statement of Remuneration Paid slip from his employer. This slip shows the income he earned in the year as well as any deductions

T4 information slip reporting

The amount in Box 20 of T4 slip - RPP is only reported once, on the T4 screen in TurboTax.

If employer contributes to an RRSP on his behalf, employee will receive a separate RRSP Contribution slip and need to report it in the RRSP section. This amount may or may not be reported on employee’s T4 in Box 40 and is already included in Box 14, it has no effect on the tax return itself.