By Sheryl Smolkin
We all know we ought to maximize Saskatchewan Pension Plan and other retirement savings plan contributions so we can retire comfortably sooner rather than later.
But the fact that your SPP contribution is deducted directly from your income for tax purposes and lowers the total income taxes you pay not only makes saving easier – it makes you feel like you’re getting a break!
You must have available RRSP room to make an SPP contribution. SPP contributions should be reported on Schedule 7 of your income tax form and claimed on line 208. Both your application and your contribution must be received by SPP before a tax receipt will be issued. SPP contributions will also be taken into account in determining RRSP over-contributions.
Spousal contributions are also permitted and if you have available RRSP room, you may contribute and receive a tax deduction for both your personal account and your spouse’s account.
Reduce taxes at source
Although you may look forward to getting money back after you file your income tax return in April, let’s face it — where possible, the best strategy is to avoid paying unnecessary taxes in the first place.
If you contribute to SPP by payroll deductions your employer can reduce the income tax you pay at source. But if you make regular monthly contributions which have not been automatically deducted by your employer, a letter of authority from a tax services officer must be provided in order to reduce income taxes deducted.
To get this letter you have to complete a Form T1213 Request to Reduce Tax Deductions at Source and provide documentation showing you are making regular SPP contributions to support the request for a tax deduction at source. It may take four to eight weeks for the Canada Revenue Agency to process the request.
Tax treatment of benefits
When your spouse has been named as beneficiary, death benefits from your account can be transferred directly to his/her SPP account or to an RRSP, RRIF, or guaranteed life annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.
All annuity payments from SPP are taxable in the year received and are eligible for the $2,000 pension income credit and for pension income splitting. Each year you will receive a T4A for the benefits that you have received in that year. Withholding tax is determined using a schedule prescribed by Canada Revenue Agency (CRA).
Your SPP account is also tax sheltered. You may continue contributing to your account until the end of the year in which you celebrate your 71st birthday or until you begin receiving a pension from SPP, whichever is earlier. You can continue contributing to the Plan if you are receiving SPP survivor’s benefits.
Key SPP tax benefits
- Personal tax deduction available.
- Spousal tax deduction available.
- Contributions and earnings are sheltered from tax until received as income.
- SPP annuity income is eligible for the pension income credit and for pension income splitting.