The cost of the service purchase is fully tax-deductible, with an annual deduction limit. In any one calendar year, you may deduct the lesser of:
- the amount you paid (or carried forward) or $3,500 minus OMERS current service contributions and any past service contributions you made during the year.
Brad bought back 3 years of pre-1990 service at a cost of $13,420. Brad was an OMERS member during that time, so his entire purchase cost is tax-deductible.
In 2008, Brad contributed $2,250 to OMERS for his current service. He deducted $1,250 of his $13,420 purchase ($3,500 – $2,250 = $1,250). He carried forward the balance of his purchase cost ($13,420 – $1,250 = $12,170).
In 2009, Brad contributed $4,000 to OMERS for his current service. He could not deduct any of his purchase cost because contributions for his current service exceeded the $3,500 limit. He continued to carry forward the balance of $12,170.
In 2010, Brad retired. He contributed only $1,000 to OMERS for his current service. He deducted $2,500 ($3,500 – $1,000 = $2,500) of the balance of $12,170 of his purchase. He carried forward a balance of $9,670 ($12,170 – $2,500 = $9,670).
Now that Brad is retired, he is not making current service contributions to OMERS. From 2011 on, he can deduct $3,500 per year until the balance of $9,670 is fully deducted.