iAtoday

On June 22, 2023, the federal government sanctioned Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023 (the “Act”). This Act amends the Income Tax Act (ITA) and its regulations to give administrators of defined contribution registered pension plans (DCPPs) greater latitude in correcting under- and over-contributions to the plan. The changes are retroactive to January 1, 2021.

Correcting under-contributions

The Act provides that an individual or employer may correct an under-contribution to a DCPP that occurred in the previous 10 calendar years ("retroactive years") by making a tax-deductible catch-up contribution ("permitted corrective contribution"), provided certain conditions are met.

The plan must also qualify as a “designated money purchase provision.” This means that in each of the 10 retroactive years, one of the following conditions must be met:

• the plan had at least 10 members; or
• contributions with respect to connected persons and employees earning more than 2.5 times the maximum pensionable earnings (MPE) in the year were less than 50% of total contributions to the plan.

The maximum amount of a permitted corrective contribution is the lesser of two amounts:

• Amount equivalent to the contributions that should have been made to the plan, plus applicable interest; and
• 150% of the defined contribution limit for the current calendar year.

RRSP contribution room is reduced for the taxation year following the year in which the permitted corrective contribution is made. If this results in negative RRSP contribution room, no new contributions can be made to the RRSP until new contribution room is earned and the negative balance is eliminated. 

Permitted corrective contributions are reported on the prescribed information return, Form T215, and filed with the Canada Revenue Agency (CRA) by the DCPP administrator within 120 days of the contribution being made.

Correcting over-contributions

Contributions in excess of those permitted under a DCPP may result in revocation of the plan's registration. To avoid this situation, tax provisions allow the plan to refund excess contributions made by employers or individuals.

The Act provides that the return of excess contributions made during the previous 10 years restores a person's RRSP contribution room in the year of the refund. The Act thus introduces the concept of "pension adjustment correction", which will increase a person's pension adjustment reversal (PAR). Also, the Act permits a reasonable interest rate to be added to a return of excess contributions.

Pension adjustment corrections are reported on the prescribed information return, Form T10, which must be filed with the CRA within 60 days of the end of the refund quarter for the first three quarters of the calendar year, or before February of the following year if the refund is made in the fourth quarter.

No changes to the plan or T4 slips for retroactive years are required to make use of these new rules.

For more information

Bill C-47

Explanatory Notes (clauses 37, 43 to 44, and 106 to 110)