Members > Pamphlets > Purchasing past service

Tax considerations

Purchasing Service

Member Handbook -
Purchasing Service
Buying Leaves of Absence
Buying Past Service Periods

In the same way your regular CAAT Plan contributions are tax deductible, a buyback purchase will be deductible if you pay in cash and have RRSP contribution room. This "room" for the current year is determined by your Pension Adjustment (PA) amount - that is, the deemed value, calculated by your employer, of the pension benefit you earned in the previous year. You can also carry forward additional unused RRSP contribution room from previous years.

At the same time, keep in mind that a buyback may affect your PA amount. If you pay for a leave of absence before April 30 of the year after the year the leave ends, it will be included in the PA reported for the period.

If you choose to buy the leave after April 30 of the following year, we will have to calculate a Past Service Pension Adjustment (PSPA) and report it for approval to the Canada Customs and Revenue Agency before the purchase can be completed.

A PSPA is the deemed value of the additional benefit created by the purchase - it reduces your RRSP contribution room. To create room for the purchase within your RRSP, you may need to withdraw some funds from it, which will be considered taxable income in the year they are withdrawn, or you may need to transfer funds from your RRSP to purchase the leave. It is to your advantage to have a PA reported instead of a PSPA.

Note that Pension Adjustments have been used since 1990. These calculations are not required for service periods before that year. However, there are some other tax issues, such as the pre-1990 deductibility limit of $3,500, which you would need to consider.

Federal law places a maximum on the amount of post-1990 unpaid leaves of absence you can purchase. The total amount is 5 years, plus up to 12 months for each pregnancy or parental leave to a maximum of 3 additional years.

Your decision to purchase service will be affected by the issues of tax deductibility, PAs and the possibility of PSPAs. You'll need to consult with your College and perhaps your financial advisor.

June 2003