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:
income from office or employment reported on a T4 slip
(line 101 of the tax return)
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.
income (less loss) from a business carried on by the
taxpayer, either alone or as a partner actively engaged in the
income (less loss) from rental of real property
royalty income regarding a work or invention of which
the taxpayer was the author or inventor
taxable support payments received
CPP or provincial disability pension income
amounts received under a supplementary unemployment
benefit plan (not federal Employment Insurance)
lessdeductible 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. Your 2012 limit would be on your 2011 Notice. The deduction limit is calculated as:
18% of "earned income" for the preceding
year, to an annual maximum (see following table)
less the "pension adjustment" amount, for
participants in a Registered Pension Plan (RPP) or Deferred Profit
Sharing Plan (DPSP)
less any "past service pension adjustment",
for participants in a RPP or DPSP
plus any "past service pension adjustment"
plus unused deduction room carried forward from the
The annual limits for RRSPs, money purchase (defined
contribution) RPPs and defined benefit RPPs are:
Annual Contribution Limits
RPPs - Max Pension
Year of Service
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
Earned income in 2012
Deduction limit for 2013
= 18% of 2012 earned income,
maximum of $23,820
The maximum of $23,820 for 2013 would be reached at an
earned income amount of $132,333 in 2012.
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. Any excess contribution over $2,000 will be subject to
penalties. 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.
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.
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.
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
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