TaxCycle Home | Products | Pricing | Events | Documentation | Support | Blog

Registered Pension Plan (RPP)


#1

I have a client who received two official slip for RPP payments made for past service. There are only three amounts on this slip, but no box numbers. Total of both slips are:

  1. $14,984.44 total amount;
  2. $9,656.48 Post 1989;
  3. $5,327.96 Pre 1990 while not a contributor
    Also, when carried over her tax return, it shows an amount of $643.00 was carried over. This amount was reported on box 75 on her 2015 tax return.

I am a bit confused where to enter the above amounts. Looking at RPP worksheet in TaxCycle, I know that #3 amount of $705.60 to be entered in “1e” box.

My questions would be:

  1. Do I enter the amount in #2 above ($9,656.48) in box 1c
  2. Line 8 in the work sheet is asking for "Number of years of service in relation to line 4 contributions.

In my question for #2, this amount was from her T4 slip, box 75 on her 2015 tax return and it was carried over to 2016. There is no where in the slip that tells me number of years related to this amount.

Your help is greatly appreciated.
Thank
John


#2

[quote=“jmvca, post:1, topic:1143”]
I am a bit confused where to enter the above amounts. Looking at RPP worksheet in TaxCycle, I know that #3 amount of $705.60 to be entered in “1e” box. [/quote]

I am a little confused myself with your #3 of $705.60 entered in “1e” box. I don’t see that number anywhere on the worksheet.

In any event, I will attempt to give you some of my insight.

From the data you provided, it looks like you have most of the form completed properly. Box 1c looks ok, box 1e looks ok too (5,327.96). I’m not sure where the $705.60 from, I don’t see it anywhere in your numbers or on the form.

Line 2b is giving you a problem because you need to enter an amount on line 8. You need to know the number of years of pre-1990 service your client bought back. It may not be on any of the paperwork that you have, but the client should be able to obtain that (or it may be in your last years records). It is a little odd (although not impossible) to have an “undeducted amount” brought forward on line 4 plus a current pre-1990 buyback as it suggests the repurchase was completed over at least 2 years. Anyway, my point here, is that since you have an amount brought forward on line 4, someone must have already known the # of years of pre-1990 service, because the number would have been entered in 2015. You would have needed to know the number of years of pre-1990 service in 2015 in order to properly deduct the $3,500 maximum last year. Once you can get the number for line 8 the rest of the form should work itself out fine. Remember, a year includes a partial year, so if your client purchased some pension from November of 1988 to February of 1989 that 4 months counts as 2 years of service.

The reason why this is important is because before 1990 the maximum deduction for RPP contributions was limited to $3,500 per year… whereas nowadays the amount is unlimited. So for example if I had a client that paid 25000 to purchase 5 years of pre-1990 service the maximum amount I would ever be able to deduct would be 17,500 (5 years x 3500), with the difference of 7500 being non-deductible at all. Of course, you are limited to 3,500 per year so it will take 5 years to fully claim the amount.

Back to your case, the amount you are going to end up being able to deduct in 2016 is ** likely ** going to be $13,156.48 being the total amount of post 1989 buyback (9,656.48) and 3,500 of the pre-1990. You will likely have a carryforward of 2,470.98 that will show up on next year’s line 4, calculated as (5327.96+643.02-3500).

Hope this helps a bit.


#3

Thank you so much snoplowguy for full explanation and my apology to confuse you with $705.60. There are two slips of RPP, So originally entered the amount from slip # 1 , then I forgot to change it for the total of two slips, which is $5,327.96.

Yes I know that I have a problem with line 8 because I don’t know how many years. As I have explained in my question above, the amount of $643 was carried over from her 2015 tax return. That amount was reported on Box 75 of her T4 slip for the year of 2015.

I read earlier on T4040, Chapter 1 that if you deduct the amount reported on line 207 of T4, you cannot deduct the amount on line 75 and 76 at the same time. So I am assuming, because there was an amount on line 207 on her 2015 tax return, the amount on box 75 was carried to 2016.
I tried to enter different number of years for line 8, as 1 year, 2 years, etc., the only number changes is line 10, and all other numbers stay the same including the number you mentioned above, $13,156.48 and carry over of $2,470.98, which are exactly what I am getting whether I enter 1 year or any other different number. So I guess it does not matter how many years I enter, as long as I don’t leave it at zero because then it will make a different on the refund.
What do you suggest? Because if you were to buyback any pension, it will be at least for a minimum of year.
Thanks again for your assistant


#4

It is possible the amount from line 4 of the worksheet ($643.02) was carried over from 2015 to 2016 because the number of years was not indicated on the worksheet last year? The only reason it would have carried forward would be if the amount was over 3,500 (for instance the 2015 figure in box 75 would be 4,143.02). If the amount in box 75 of the 2015 T4 was 643.02 then it likely should have been claimed in 2015. You may claim both a RPP deduction from your T4 slip as well as the pre-1990 past service repurchase up to an additional $3,500 provided you haven’t exceeded the 3,500 x # of years limitation.

You are correct in that any number you put in that box for “years” will not change anything as long as the number is above 0. 1 year is going to give you the maximum annual deduction of 3,500. You need to know how many years of pre-1990 service was purchased in order to determine whether you can deduct any amount next year or following years. If she bought back at least 2 years of service then it seems you will be able to claim the entire 5,970.98 (5,327.96+643.02) as follows;

3,500.00 in 2016
2,470.98 in 2017

Of course, this is in addition to the $9,656.48 in post 1990 buyback, so that is why I said the likely deduction was 13,156.48. This will be the absolute maximum deduction for the year unless she also has some RPP on line 20 of her 2016 T4 slip. If she does, 2016 her deduction would increase by that amount.

Once again, for the calculation of pre-1990 service buyback, part of a year counts as an entire year for the purposes of this calculation. Lets say the repurchased service was only for 2 months, lets say December of 1988 and January of 1989 those 2 months would actually count as 2 complete years.

So a figure of 1 year will get you the claim that you will ultimately be making for 2016. What I would suggest, however, would be to try to obtain from the client how much pre-1990 service was repurchased. They would have gotten some paperwork (including calculations) from the employer letting them know how much to write the cheque for.


#5

Thanks a lot. I will contact the client.


#6

Thanks for your assistant. My client replied and she said it was for 14 years of buyback, so I entered 14 in line 8 and the same amount you mentioned above are carried for next year. Thanks again.