A like OMERS is a tax-efficient form of saving.
Under the Income Tax Act
, the federal government provides you with tax relief on the contributions that you pay into OMERS.
- You contribute a percentage of your earnings to help pay for your future OMERS pension.
- Your employer deducts these contributions from your gross income, which reduces your taxable income – the amount of income on which you pay taxes. As a result, over the course of the year, the income on which you pay taxes has been reduced by the amount of your pension contributions.
- This is like contributing to an RRSP – except that your employer reduces your tax right away, so that you don’t have to wait until you file your tax return to benefit.
- Your employer also contributes an equal amount. These contributions are not a taxable benefit – you do not count them as income.
- Once you retire and begin collecting your OMERS pension, income tax will be applied to your payments. However, in most cases, it will be at a lower marginal tax rate than when you were employed.