I am doing a return for a new client, who received a T4a, and said it’s a retirement lump sum payment. But the amount is recorded in box 18. Is there a way I can verify it’s in deed pension amount?
Although the payment has to do with the client’s pension plan it likely does not qualify as a pension payment. If the amount is in box 18 it is more likely just a return of premiums the client paid into a pension plan to which he is no longer a member.
This situation happens when an employee gets hired by an employer who offers a registered pension plan for their staff members. If the employee does not stay with that employer for the long haul; is either terminated or quits after a few years, they generally have the option to have their contributions refunded. Some pension plans simply kick you out of the plan if you leave the employer and don’t have enough vested. Others may give you the option of staying in the plan, transferring the amount to your RRSP, or taking the payment in cash. This generally only applies to your own contributions to the plan. In many cases you lose the contributions your employer made on your behalf.
Chances are your client received this payment as a result of leaving a job with an employer who offered pension benefits. They likely received a letter last year asking if they wanted their contributions transferred to their RRSP or whether they wanted a cash payment. They likely opted for the cash payment or didn’t respond to the letter. In those cases the pension plan generally issues a payment, less 10% withholding tax and produces a T4A with an amount in box 18 and the tax in box 22.
Thanks for the response. Then I am guessing still can treat this as pension income and using pension split ?
No, it’s usually just a refund of premiums.
You can not claim the pension credit or split the amount.
I was thinking it’s refund of premiums too, but it’s showing tax withheld on the T4A, shouldn’t refund of premiums tax free? I thought it’s more like a DPSP, RPP set up that wasn’t tax at the time of contribution. Which can be transfer to RRSP or TFSA, but wasn’t done, so everything is taxable now as pension hopefully
Pension contributions provide a tax shield when the contributions are made, so a refund is taxable in the year paid. You have to give up in your thinking it’s pension income. It’s not.
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Wow, what a sad thing to tell them, I don’t know if they ignore the letter or what, if they transfer the balance to RRSP first, they could save a lot on taxes