CRA denies Ontario taxpayer’s RRSP deduction due to pension adjustment

financialpost.com:

To help save for retirement, Canadians are encouraged to contribute to a registered retirement savings plan (RRSP) each year. The amount you can contribute is based on 18 per cent of the prior year’s earned income, up to an annual maximum. For 2024, that annual maximum is $31,560. Earned income includes employment earnings, self-employment earnings, and rental income.

Taxpayers who participate in their employer’s registered pension plan (RPP), whether it be a defined benefit or defined contribution (DC) plan, may find their RRSP contributions limited by something called a “pension adjustment,” or PA. The PA represents the value of the pension credits you’ve earned as a result of your employer making contributions on your behalf to a pension plan. The purpose of the PA is to prevent double-dipping of tax deductible pension contributions; as your employer contributes to a pension plan on your behalf, the amount you can then contribute to an RRSP is reduced accordingly.

The PA is reported on your T4 slip each year, and will reduce your RRSP contribution limit for the following year. For example, the 2023 T4 slip you received from your employer in February 2024 would have reported your 2023 employment income, along with your PA from 2023, which reduces your 2024 RRSP contribution room. You can see the PA taken into account on your RRSP deduction limit and available contribution statement that forms part of your annual notice of assessment.

The calculation of the PA, which is done by the employer, and the one-year lag, can sometimes cause confusion for taxpayers and lead to RRSP contribution errors.

Take the recent case of an Ontario taxpayer, decided in late October, who went to Tax Court earlier this year to challenge an