As a member of a Registered Pension Plan, the benefits you earn under LAPP are subject to the Income Tax Act. For every year that you are active in LAPP, your employer will report a Pension Adjustment (PA) which represents the value allocated by the Canada Revenue Agency (CRA) to the increase in your LAPP benefit entitlement and will reduce your Registered Retirements Savings Plan (RRSP) contribution room. When the Canada Revenue Agency (CRA) reviews your tax return, they will consider this PA in determining the amount of RRSP contribution room that will be available to you for the following year.
Likewise, if you buy prior service that occurred after 1989, a Past Service Pension Adjustment (PSPA) will be associated with the prior service you are buying. This PSPA represents the value allocated by CRA to the increase in your LAPP benefit entitlement and will reduce your RRSP contribution room.
Timing is Important
If the Qualifying Transfer is the only payment you will be making to buy the prior service, we must receive the funds before any other payment, and before the payment due date shown on the Buyback Proposal.
We will adjust the PSPA before sending it to CRA which will help you maximize your RRSP contribution room. If any other payment is received by us before the transfer of registered funds, the full PSPA will be reported to CRA.
If you have already started to make payments toward your prior service and decide to buy only a portion of the service covered in your Buyback Proposal, the PSPA will not be prorated. We will report your PSPA to CRA after your first payment is received and will not be able to amend the PSPA once it has been issued.