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Why are we taxed twice on the QPP? Because we have no deduction (like an RRSP for example) when we contribute, and then we are taxed when we start withdrawing benefits?
In an exchange of emails, Retraite Québec reminds that the Quebec Pension Plan (QPP) is now made up of the basic plan and the supplementary plan. Contributions to the latter are deductible from income, in the same way as for registered retirement savings plans (RRSP). For the basic plan, contributions are taken into account in the Basic Personal Amount. They apply beyond a general exemption of $3,500. “Thus, each taxpayer is entitled to a non-refundable credit as if he or she had contributed the maximum during the tax year. This is a redistributive measure which is beneficial for many contributors, particularly those with lower incomes,” explains the spokesperson and head of the consulting and strategies, public relations and social media division, Frédéric Lizotte. .
For its part, the RRSP limits maximum contributions to the lesser of 18% of earned income from the previous year or an annual ceiling ($30,780 in 2023), reduced by an equivalence factor if the taxpayer benefits from a supplementary retirement plan.
Everything must be put in the perspective of the Canadian three-tier retirement system. The QPP occupies the first level, the federal government the second with its PSV (and its SRG), private plans and personal savings taking the third. The QPP targets a replacement rate of 25% (should increase to 33.33% with the supplementary plan, contributions to which begin this year) and a maximum eligible earnings (MGA) of $68,500 in 2024 (the supplementary plan targeting a maximum eligible salary must reach 114% of the MGA).
Established in 1957 by the federal government, the RRSP aimed to encourage Canadians to increase their retirement capital in addition to public plans, according to the generally accepted idea that a replacement rate of 55 to 60% of income makes it possible to maintain your standard of living in retirement. It also aimed to offer those who do not have a supplementary pension plan to benefit from the tax advantages that participants in a pension plan offered by their employer could receive. At that time, we were talking about largely defined benefit plans which were essentially the prerogative of the largest companies.
For more details, here is a link to an explanatory sheet designed by the Chair in Taxation and Public Finance at the University of Sherbrooke. We can read in particular that for the 2023 tax year, the employee is entitled to federal tax credits for contributions made to the QPP of a maximum of $426.78, or 12.5% of the contribution of base. He is also entitled to a maximum deduction (federal and Quebec) of $631 with respect to the additional QPP contribution (i.e. 1% of $63,100).