Tax Implications

Important! Tax information may change without notice. Please consult the Canada Revenue Agency (CRA), or a tax specialist for current, accurate and detailed information.

Tax Deductibility

All, or a portion of, the amount a member pays to purchase Supplemental Plan past service may be tax-deductible. A member can't have a tax deduction if the member transfers money to Supplemental Plan from an RRSP or a registered pension plan to pay for the service because this money is already tax-sheltered. 

There are different sets of rules for tax-deductible contributions for:

  • pre-1990 service while the member is not a contributor to any pension plan;
  • pre-1990 service while the member was a contributor to a pension plan (note: most pre-1990 past service purchases would fall into this category); and
  • post-1989 service.

For pre-1990 past service purchases, the member may need to wait until retirement to claim this period for tax purposes. This is because there are Income Tax Act restrictions on the amount that can be deducted in any one calendar year.

Pre-January 1, 1990 Service While Not a Contributor

If the member buys a period of pre-1990 service from a calendar year during which the member made no contribution at all to any registered pension plan (other than the Canada Pension Plan), the following rules apply. 

The total amount the member may deduct is the member' total contribution (there is no limit). 

The contribution a member may deduct in any calendar year for the service purchase is the lesser of:

  • the total past service contributions; or
  • $3,500 multiplied by the number of eligible calendar years, including any part of a year that the member was not a contributor to a pension plan.

In any one calendar year a member may deduct the lesser of:

  • the contribution actually paid by the member or carried forward; or
  • $3,500.

A member may carry forward the balance for deduction in the following years until he or she has taken the total allowable deduction.

Pre-January 1, 1990 Service While a Contributor

If the member buys a period of service that occurred in a calendar year during which the member made a contribution to a registered pension plan (other than CPP), the following rules apply. 

The total amount the member may deduct is the member's total contribution (there is no limit).

The contribution a member may deduct in any calendar year for the service purchase is the lesser of:

  • the contribution actually paid by the member or carried forward; or
  • $3,500 minus the sum of:
    • the amount was deducted in that year (i.e., the year the deduction is made) for current service contributions; plus
    • the amount the member deducted in that year (i.e., the year the deduction is made) for past service contributions while not a contributor.

A member may carry forward the balance for deduction in the following years until the member has taken the total allowable deduction.

Loan Interest

The interest paid on money borrowed to buy past service is not tax-deductible.

Service after 1989

The full amount of the contribution is deductible in the year it is paid.

Past Service Pension Adjustments (Applies to 2.33% Supplemental Plan Benefit Only)

Each year since 1990, a member's employer has calculated the estimated value of the lifetime OMERS pension the member earned according to a formula established by the Canada Revenue Agency. The estimated value is called a Pension Adjustment (PA) and is reported by the employer each year on each member's T4. Canada Revenue Agency deducts the PA from the member's available RRSP room. 

If a member purchases any Supplemental Plan service related to the 2.33% accrual rate benefit and the service occurred after December 31, 1989, OMERS will calculate a PA for the past service and report it to the CRA. This is called a PSPA (past service pension adjustment).

A PSPA is reported for past service purchases related to the 2.33% accrual rate Supplemental Plan benefit only. A PSPA is not reported for past service purchases related to the 80/85 Factor, “best three” earnings, and “best four” Supplemental Plan benefits. 

The CRA will subtract the PSPA from the member's available RRSP contribution room, and will not allow the member to purchase service if the member does not have enough room for the PSPA. 

Paying for a past service purchase by RRSP reduces the PSPA reported to the CRA. PSPAs less than $50 don't need CRA approval.

The CRA may allow a member to exceed their available RRSP room by $8,000 leaving the member with a negative RRSP deduction limit. In this case, the member will not be able to make any RRSP contributions until their current (and possibly future) earnings restore their RRSP room to a positive value.

If a PSPA can't be approved, the CRA will send the member forms and instructions. The member can make a "qualifying withdrawal" or a "qualifying transfer" of RRSP money to create more RRSP room. The member can also decide to purchase less service, or none at all. 

Supplemental Plan benefits are not automatically provided. Employers can set up Supplemental Plan coverage for a class or classes of members in the police sector, firefighters and paramedics.