Archived - Backgrounder - Saskatchewan Pension Plan and Changes to the Income Tax Act
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The Saskatchewan Pension Plan (SPP) is a voluntary defined contribution pension plan established by the Government of Saskatchewan in 1986. Currently, the SPP allows annual contributions of up to $600. SPP contributions are deductible where a contributor has available Registered Retirement Savings Plan (RRSP) room, and reduce the contributor’s RRSP deduction limit accordingly.
The income tax proposals released today include draft legislation to accommodate an increase in the annual limit for tax-deductible SPP contributions to $2,500, subject to an individual’s available RRSP contribution room.
Further, the draft legislation includes amendments that bring the treatment of the SPP in line with that of Registered Pension Plans (RPPs) and RRSPs. Specifically:
- Transfers from RPPs and RRSPs to the SPP will be permitted within existing limits on such transfers under the RPP/RRSP rules, subject to any additional limits imposed by the SPP;
- SPP annuity payments will be eligible for the pension income credit and pension income splitting;
- Rollovers of SPP funds on death to the RRSP or Registered Disability Savings Plan of a financially dependent infirm child or grandchild will be permitted;
- SPP contributions will be taken into account in determining RRSP over-contributions; and
- SPP savings will be subject to the same income attribution rules as RRSPs.
While non-deductible annual contributions of up to $600 have been specifically permitted under the SPP independent of an individual’s available RRSP room, the proposed changes will require SPP contributions to be based on an individual’s RRSP limit, which is derived from earned income. In this regard, the Tax-Free Savings Account (TFSA), introduced in Budget 2008, now allows individuals without earned income to save on a tax-assisted basis, since the annual $5,000 TFSA contribution limit is not related to earnings. Requiring SPP contributions to be based on available RRSP room allows other features of the RPP/RRSP rules to apply to the SPP and therefore better enables the SPP to support retirement savings.
With these changes, contributions to the SPP will be taken into account for RRSP over-contribution purposes and counted towards an individual’s $2,000 RRSP over-contribution allowance. Any over-contributions in excess of that allowance will be subject to the one per cent per month penalty tax that applies to excess RRSP over-contributions. To facilitate transition to the new rules, the RRSP over-contribution rules will not apply to SPP contributions made in respect of taxation years before 2010 or to the first $600 of SPP contributions made in respect of the 2010 taxation year. This will avoid putting SPP members in an over-contribution situation based on SPP contributions made under the former rules.
As noted above, the income attribution rules applicable to spousal RRSPs will now apply to contributions made to a spouse’s account under the SPP. In general, the application of these rules is likely to affect only a limited number of SPP members or their contributing spouse or common-law partner. These rules would generally result in the attribution of SPP amounts to a spouse or common-law partner in the year in which an SPP member received SPP funds, if his or her spouse or partner contributed funds to the SPP member’s account in that year or in one of the two previous years, and either:
- The SPP member cancels membership in the SPP within six months of joining (before contributions become locked-in) and receives a refund of contributions, as permitted by the plan; or
- Upon retirement under the SPP, the SPP member transfers his or her SPP savings to a Registered Retirement Income Fund (RRIF) and withdraws an amount in excess of the annual minimum withdrawal amount (under the spousal RRSP attribution rules, only withdrawals from a spousal RRIF in excess of the annual minimum RRIF withdrawal amount are subject to the attribution rules).
The attribution rules would apply in respect of contributions made by a spouse or partner after 2010.
The accompanying explanatory notes provide additional details regarding the proposed legislative amendments to the Income Tax Act.
With the exception of the attribution rule changes described above, and the exclusion of the first $600 in SPP contributions for 2010 from the overcontribution rules, it is proposed that these changes apply to 2010 and subsequent taxation years. The Government intends to introduce legislation in respect of these proposals at an early opportunity.
The Canada Revenue Agency and SPP administrators are working together to develop information and procedures for taxpayers who want to take advantage of the changes for the 2010 tax year.