Employee Retirement Income Replacement Benefits

The Canadian retirement income system is comprised of individual savings, employers sponsored retirement income plans, government sponsored retirement income plans and social security benefit plans.

Employer Sponsored Retirement Benefit Plans:

Government Sponsored Retirement Benefit Plans:

Taxation of Retirement Plans

As a general rule, retirement plans delay taxation by shifting income from the period in time that it was earned to a later period. This reduces personal income taxes since income tax is reduced at the marginal rate during a period of employment and usually paid at a lower average rate during retirement. Employers deduct their contributions to the retirement plan during the period of employment in order to satisfy the generally accepted accounting principle of matching expenses to the period in which the revenue was generated.

Revenue Canada controls the rules governing the tax treatment of retirement savings plans (RPP, DPSP, RRSP) in Canada through the Income Tax Act and Interpretation Bulletins.

  • employer contributions and costs are tax deductible to the employer
  • employee contributions are tax deductible to the employee
  • income and growth are tax sheltered within the plan
  • benefit payments and withdrawals are taxable to the recipient

Legislative History of Pensions and Retirement Savings Plans (federal unless stated)

  • 1887 - Pension Fund Societies Act allowed employees to set up pension funds
  • 1908 - Government Annuities Act facilitated retirement savings by selling annuities until 1975
  • 1919 - Income Tax legislation allowed employees to deduction from taxable income their pension plan contributions and later permitted employers to deduct their contributions (RPP)
  • 1952 - Old Age Security pension without a means test (OAS)
  • 1957 - Registered Retirement Savings Plan (RRSP)
  • 1965 - Provincial Pension Benefits Acts
  • 1966 - Canada and Quebec Pension Plans (CPP, QPP)
  • 1967 - Guaranteed Income Supplement (GAINS)