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RRSP Contribution Limits

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RRSPs RRIFs and TFSAs -> RRSP MPP and DPSP Contribution Limits

RRSP MPP and DPSP Contribution Limits

Anyone with RRSP contribution room can contribute to an RRSP, up to and including the year that the contributor turns 71 years of age.  Contributions can be made to a spousal RRSP up to and including the year that the spouse or common-law partner turns 71 years of age.  This maximum age was increased from 69 to 71 by the 2007 Federal budget, giving people an additional two years to contribute.

RRSP contribution room is based on "earned income".  Generally, earned income includes a taxpayer's income (earned while the taxpayer was resident in Canada) from the following:

bullet income from office or employment reported on a T4 slip (line 101 of the tax return)
bullet other employment income (line 104) - this includes foreign employment income, which must be reported in Canadian dollars.
bullet Employment income on a US W-2 slip may have been reduced by contributions to a "401(k), 457 or 403(b) plan, US Medicare and Federal Insurance Contributions Act (FICA)".  These amounts must be added to foreign employment income on line 104.  However, based on the Fifth Protocol to the Canada - U.S. Income Tax Treaty (Article XVIII), starting with the 2009 tax year, these amounts may be deductible on line 207 of your tax return.  See the CRA information on  Line 207 - RPP deduction.
bullet income (less loss) from a business carried on by the taxpayer, either alone or as a partner actively engaged in the business
bullet income (less loss) from rental of real property
bullet royalty income regarding a work or invention of which the taxpayer was the author or inventor
bullet taxable support payments received
bullet CPP or provincial disability pension income
bullet amounts received under a supplementary unemployment benefit plan (not federal Employment Insurance)
bullet less deductible support payments made

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:

bullet 18% of "earned income" for the preceding year, to an annual maximum (see following table)
bullet less the "pension adjustment" amount, for participants in a Registered Pension Plan (RPP) or Deferred Profit Sharing Plan (DPSP)
bullet less any "past service pension adjustment", for participants in a RPP or DPSP
bullet plus any "past service pension adjustment" reversals
bullet plus unused deduction room carried forward from the previous year

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:

Year

Annual Contribution Limits

Defined Benefit
RPPs - Max Pension
 Benefit per 
Year of Service
RRSPs Money
Purchase (MP)
RPPs
DPSP
2005 $16,500 $18,000 $9,000 $2,000.00
2006 $18,000 $19,000 $9,500 $2,111.11
2007 $19,000 $20,000 $10,000 $2,222.22
2008 $20,000 $21,000 $10,500 $2,333.33
2009 $21,000 $22,000 $11,000 $2,444.44
2010 $22,000 $22,450 $11,225 $2,494.44
2011 $22,450 $22,970 $11,485 $2,552.22
2012 $22,970 $23,820 $11,910 $2,646.67
2013 $23,820 $24,270 $12,135 $2,696.67
2014 $24,270 $24,930 $12,465 $2,770.00
2015 $24,930 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
$4,500 $8,100 $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.

RRSP Excess Contributions

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.

Note re Home Buyer's Plan and Lifelong Learning Plan

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.

Other Resources

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: September 27, 2014

 

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