The reply I got Jan 08. To make a long story very short, you will probably not be able to deduct all of the monthly buyback on your income tax. Each case is different. Depends on length of service. I can only deduct $3500 (I pay $8580 per year) a year to a maximum of $63,000 life time.
Note that the only reason I still owed anything was the 7% Compound Interest which increased my interest costs by an additional $103, 600. The additional interest @7% CI meant I still owed $97,000 after all lump sum payments. Financing over 20 years added an additional $74,000 in interest (some mortality charge in that number) to the $97,000 which I should not have owed in the first place if we were only charged 4% Simple interest. Cost an additional $171,000.
Total interest charges of my buy back were $ 222,100 !!! DND and TB are loan sharks. And, I can only deduct a life time of $63,000 @ $3500 per year of the $171,000
Answer from Pension Services: You may wish to contact a financial advisor, or consult with the Canada Revenue Agency concerning the deductibility of your monthly deductions of $715, which will amount to an annual deduction of $8,580. The total cost for your elected service has been calculated to be $xxx,xxx. The cost for service prior to 1990 is $xxx,xxx, and the cost for service after 1989 is $xxx,xxx.
CRA rules for pension contribution deductibility are different for pre-1990, and post-1989. Due to the introduction of the PSPA, there is no limit on what may be claimed as a deduction for contributions related to service after 1989, if a PSPA has been certified (or is not required due to RRSP transfers). In your case, the proportion of pre-1990 balance of cost owing compared to total balance owing is 89.6%, and the proportion of post-1989 balance of cost owing compared to total balance owing is 10.4%. Applied to your monthly deduction of $715, the breakdown of your monthly deduction is $639.94 for pre-1990 service, and $74.58 for post-1989 service. Annually, it translates to $7,679.28 for service prior to 1990, and $894.96 for service after 1989.
This is where you will need the advice of a financial advisor or CRA in order to confirm the following. My unofficial notes re deductibility indicate that there are maximum annual amounts, and also maximum lifetime amounts that may be claimed for pre-1990 service. In the eyes of CRA, your elected reserve service is service "while not a contributor", meaning that at the time of the service, you were not a CF Pension Plan contributor. You became a contributor on 1 Mar 07. My notes indicate that in addition to the amount of $894.96 that you will be able to claim annually, there is a maximum of an additional amount of $3,500 that may be claimed annually, and a lifetime maximum, in your particular case of $63,000. The $63,000 is calculated by taking into consideration the number of pre-1990 years involved in the election, which is 18 calendar years (1972 to 1989), and multiplying by $3,500 (18 X $3,500 = $63,000).
