Fixing Contribution Errors for Defined Contribution Pension Plans

Bennett Jones LLP

Bennett Jones LLPWhat You Need to Know About Draft Amendments to the Federal Income Tax Act and Regulations

On February 4, 2022, the Canadian federal government released draft legislation to implement a variety of proposed tax measures, which are discussed in a number of separate articles by Bennett Jones. In this article, we discuss certain of the measures that, if adopted as proposed, would implement the federal government's 2021 Budget commitment to provide greater flexibility to pension plan administrators and to simplify the process for making and reporting contribution errors under defined contribution (DC) registered pension plans.


The Income Tax Act (Canada) (ITA) and regulations do not currently permit retroactive contributions to a DC registered pension plan to correct under-contribution errors (including missed contributions) in respect of prior years. Historically, this has meant that a plan administrator's ability to correct contribution errors under a DC registered pension plan have been constrained by the current year annual contribution limits.

To provide greater flexibility the draft amendments would, subject to certain conditions, permit tax-deductible additional contributions (defined as “permitted corrective contributions”) to be made to an employee’s DC account in order to rectify under-contribution errors made in any of the five years preceding the year of such permitted corrective contributions. These permitted corrective contributions would not be capped by the annual DC (or money purchase) dollar limit applicable to current year contributions, and would not impact or otherwise interfere with the making of regular current-service contributions. 

Rather, permitted corrective contributions made in any calendar year in respect of an individual would be limited to the lesser of:

  • the contribution that should have originally been made (subject to applicable limits), plus an amount in respect of interest as required by pension standards legislation or, if no such requirement exists, that does not exceed a reasonable rate (i.e., the fund rate of return); and
  • 125 percent of the DC (or money purchase) dollar limit for the year in which the permitted corrective contributions are made.

Additionally, the individual’s registered retirement savings plan (RRSP) contribution room would be reduced for the taxation year following the year in which the permitted corrective contributions are made. If this results in negative RRSP room, then the individual would be prohibited from making new deductible RRSP contributions (and may be subject to tax on RRSP excess contributions) until the individual earns future RRSP room and eliminates the negative balance.

The reporting of permitted corrective contributions would be satisfied through the filing of a prescribed information return with the Canada Revenue Agency (required within 120 days of the permitted corrective contribution), and eliminate the requirement to amend T4 slips for the affected years.

Notably, in order to take advantage of these new rules, a registered pension plan would not be required to be amended to explicitly provide for permitted corrective contributions.


The draft amendments also address over-contributions that are made to DC registered pension plans. When a contribution is made to a registered pension plan in excess of what is required or permitted, such contribution will generally cause the registration of that plan to be revocable. To help alleviate against that risk, the regulations presently allow for a refund of over-contributed amounts.

The draft amendments to the regulations provide that a refund of over-contributions respecting any of the previous five years would result in the restoration of RRSP room for an affected plan member for the year in which such refund is made, to be reported by the plan administrator by filing a prescribed information return in lieu of amended T4 slips (although a T4A slip will generally have to be provided for the year in which the distribution occurs). Specifically, if the distribution occurs in the first, second or third quarter of a calendar year, the prescribed information return would be required to be filed no later than 60 days after the end of the quarter. If the distribution occurs in the fourth quarter of a calendar year, the prescribed information return would be required to be filed before February of the following calendar year.

Finally, the draft amendments provide that plan administrators would be permitted to add a reasonable rate of interest to any refund of over-contributions that are made in order to avoid revocation of a plan's registration.

Key Takeaways

The draft amendments to the ITA and regulations are a welcome development as they would, if adopted as proposed, assist DC plan sponsors and administrators with addressing some of the tax-related issues that have been faced when making DC plan contribution error corrections, particularly as they relate to addressing under-contributions errors. However, the draft amendments set out certain parameters, including dollar limits, which could result in some residual issues for plan sponsors and administrators. Most notably, the draft amendments do not address errors that are more than five years before a correction is made, thereby leaving open the requirements and treatment of corrections made for such earlier periods. Further, caps on the amount of permissible corrective contributions that can be made in a year might make it difficult for certain errors to be corrected.

A month-long commentary period ended March 7, 2022, and it is possible that the draft amendments will be further modified before being finalized.

Written by:

Bennett Jones LLP

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