RRSPs RRIFs and TFSAs ->
If the taxpayer was not resident in Canada, but had income from employment performed or a business carried on in Canada, this may also constitute earned income, unless it was exempt from income tax in Canada due to a tax treaty with another country.
Immigrants to Canada can get more information about Canadian income tax and RRSPs from the CRA publication T4055 - Newcomers to Canada.
The maximum RRSP contribution amount that can be deducted is called the "RRSP deduction limit", and is also known as "contribution room" or "deduction room". Your deduction limit is found on your Notice of Assessment or Notice of Reassessment from Canada Revenue Agency (CRA). Your 2014 limit would be on your 2013 Notice. The deduction limit is calculated as:
Note that RRSP withdrawals do not affect the deduction limit (contribution room) - that only happens with TFSAs.
The annual limits for RRSPs, money purchase (defined contribution) RPPs, deferred profit sharing plans (DPSPs), and defined benefit RPPs are:
Annual Contribution Limits
RPPs - Max Pension
Year of Service
|2016||$25,370||indexed||1/2 the MP limit||1/9 the MP limit|
The DPSP limit is 1/2 of the MP limit each year. The MP limit and DPSP limits for pension adjustment (PA) purposes are also restricted to 18% of compensation.
For each year after 2009 for RPPs and 2010 for RRSPs, the limits are indexed for inflation using the Industrial Aggregate average wages and salaries in Canada.
RRSP limits lag behind RPP limits by one year because RRSP limits are based on prior-year earnings, and RPP limits are based on current-year earnings.
|Deduction Limit Examples for RRSPs||Taxpayer 1||Taxpayer 2||Taxpayer 3|
|Earned income in 2012||$25,000||$45,000||$150,000|
|Deduction limit for 2013
= 18% of 2012 earned income,
to maximum of $23,820
The maximum of $23,820 for 2013 would be reached at an earned income amount of $132,333 in 2012.
If the RRSP contribution is less than the deduction limit, then the "deduction room" is carried forward to future years. Assume Taxpayer 3 made a contribution of only $10,000 for 2013. The unused deduction "room" of $13,820 can be carried forward and added to the calculation of the 2014 deduction limit.
It is not mandatory to actually deduct the entire deduction limit amount on the current year tax return. If the taxpayer will be in a higher tax bracket in the following year, some or all of the contribution made can be carried forward to be deducted in a future year. The advantage of doing this must be weighed against the disadvantage of receiving the tax refund in a later year.
A taxpayer can contribute up to the amount of their deduction limit, plus an excess contribution as long as the total excess contribution never exceeds $2,000. However, the allowed excess will be less than $2,000 when the deduction limit is negative due to a PSPA amount. Also, only taxpayers who are 19 or older in the taxation year qualify to have an excess amount. Any excess contribution over $2,000 may be subject to a 1% per month tax.
When an excess contribution greater than $2,000 has been made, contact your financial institution or brokerage as soon as possible to determine the best remedy. If the contribution has already been reported to CRA, application can be made to CRA using form T3012A Tax Deduction Waiver on the Refund of your Unused RRSP Contributions, in order to withdraw the amounts without having income tax deducted. CRA will return the form, indicating the amount that is authorized to be withdrawn without deducting withholding tax. However, a tax on the excess may still be payable.
See Tax on Excess Contributions in the CRA publication T4040 - RRSPs and Other Registered Plans for Retirement. If you are required to pay the tax on excess contributions, CRA's form T1-OVP Individual Tax Return for Excess Contributions must be completed. If you are not sure if you are required to pay the tax, follow the steps in CRA's Determine if you have to complete a T1-OVP.
Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the Home Buyer's Plan (HBP) or Lifelong Learning Plan (LLP), or the contributions may not be deductible for any year. In other words, if RRSP contributions are made in the 89-day period just prior to an HBP or LLP withdrawal from the RRSP, the value of the RRSP after the HPB or LLP withdrawal must be at least equal to those contributions.
RRSP contributions section of CRA's T4040 - RRSPs and Other Registered Plans for Retirement.
To calculate savings from an RRSP contribution, see the Canadian tax calculator.
Tax Tip: Pay yourself first.
Revised: June 07, 2016
Copyright © 2002 - 2016 Boat Harbour Investments Ltd. All Rights Reserved See Reproduction of information from TaxTips.ca