Question: Can an employee request to have his or her vacation pay and/or banked overtime transferred to a Registered Retirement Savings Plan (RRSP)? If so, do we deduct income tax?
06/28/2006|hrreporter.com|Last Updated: 08/24/2006
Yes, an employee can request to have banked overtime and/or vacation pay transferred to an RRSP with no tax withholding.
An employer, upon request from an employee, is permitted to transfer remuneration tax-free to the employee's RRSP, provided the amount being transferred will not exceed the employee's RRSP deduction limit.
The onus is on the individual to ensure that the amount transferred does not exceed his or her RRSP deduction limit. An employer must have "reasonable grounds" to believe that the employee can deduct the contribution for the year. The Canada Revenue Agency (CRA) considers that the employer has "reasonable grounds" to believe the employee can deduct the contribution if the employer has written confirmation from the employee that the contribution can be deducted for the year, or a copy of the employee's RRSP deduction limit statement, which the CRA sent to the individual along with the individual's
Notice of Assessment
. You do not need a letter of authority from the CRA to make the transfer.
Although the amount to be transferred is not subject to income tax deductions, it is still subject to Canada/Québec Pension Plan (C/QPP) contributions, Employment Insurance (EI) and Québec Parental Insurance Plan (QPIP) deductions, provided that the employee has not reached the annual maximum contribution limits.