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RRSP contributions

Making contributions to your RRSP

In order to be deductible in the current taxation year, contributions to your Registered Retirement Savings Plan (RRSP) must be made either during the year or up to 60 days after December 31st of the current year. Contributions made in the first 60 days of the following year can either be deducted in the current year, or in a future year.

To learn more, please choose from the following:

Earned income

Contribution limits to your RRSP are in part based upon a percentage of your "earned income" from the previous year.

Earned income includes:

  • Salary or wages from employment. This amount is reduced by deductible employment-related expenses such as union or professional dues
  • Disability pensions paid under the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) (you must be a resident of Canada when you receive the payments) and taxable income from a disability plan. Regular CPP and QPP retirement pensions do not qualify as earned income
  • Net income from a business carried on by a self-employed individual or by an active partner of a partnership
  • Net rental income from real property
  • Payments from supplementary unemployment benefit plans (not Employment Insurance)
  • Taxable alimony or maintenance payments received
  • Royalties and net research grants

Earned income must be reduced by the following amounts:

  • Losses from a business carried on by a self-employed individual or by an active partner of a partnership
  • Net rental losses from real property
  • Deductible alimony or maintenance payments

Contribution limits

Calculating your RRSP contribution limit

If you have not participated in an Registered Pension Plan (RPP) or a Deferred Profit Sharing Plan (DPSP) in the previous tax year, the maximum RRSP contribution you could earn is equal to the lesser of:

  • 18% of your earned income for the previous tax year; or
  • The prescribed annual limit for the year.

If you are a member of an RPP or DPSP, your RRSP contribution limit may be reduced by the value of benefits you have accumulated in the RPP or DPSP. The value is calculated by your employer and is reported to you and the Canada Revenue Agency (CRA) as a pension adjustment (PA). The PA indicated on your prior year’s T4 slip reduces your RRSP contribution limit for the current tax year.

The carry-forward rule

As of 1991, individuals that do not contribute their maximum annual contribution to their RRSP can carry forward the "unused portion" and make the contribution in a future year. This unused portion can be carried forward indefinitely.

Be aware, however, that waiting until a future year to "catch up" on deductible contribution room will, in most cases, result in a smaller RRSP due to the loss of tax-deferred growth.

Excess contributions

As long as you do not exceed your available contribution limit by more than $2,000 on a cumulative basis, a penalty tax of 1% per month on the excess amount will not be assessed.

If a contribution exceeds the $2,000 excess contribution limit, it must be removed to avoid the penalty tax. The removal of this excess amount from the RRSP may result in the inclusion of the excess amount as taxable income unless it is withdrawn in the year that it is contributed, the year the CRA Notice of Assessment is received or the following year.

Note: The $2,000 excess contribution limit is only available to individuals who have attained the age of 18 in a prior year.

Prior to January 1, 1996 individuals were allowed to make an excess contribution of up to $8,000. Individuals that made an excess contribution of more than the new $2,000 limit prior to February 27, 1995 are required to reduce this excess balance as soon as possible.

This is achieved by claiming the excess contribution amount as a deductible RSP contribution starting with the 1996 tax year. Additional contributions will not be allowed until the excess contribution has been reduced to the $2,000 level. While this excess contribution limit was intended as a buffer against accidental excess contributions, it does present an opportunity to add additional capital to your RRSP and benefit from its tax-deferred compounding.

Contributions made by securities

If you don't have the cash to make your RRSP contribution, you can contribute eligible investments from outside your RRSP at their fair market value. For tax purposes, investments transferred into the RRSP (i.e. an in-kind contribution) are treated as if the investment was actually sold. Therefore, this transfer triggers a taxable capital gain.

Unfortunately, if the fair market value of the transferred investment is less than its original cost, the resultant capital loss cannot be claimed. Also, any accrued interest up to the transfer date must be reported as income (i.e. interest that has been earned but not paid).

Transfers into an RRSP

Certain amounts may also be transferred into your RRSP in addition to your allowable RRSP contribution limit. These lump-sum transfers are allowed between registered plans on a tax-deferred basis. This includes:

  • Retiring allowances (a lump sum payment in the form of a retirement or severance package)
  • Lump-sum transfers from a pension plan
  • Transfers from another RRSP

Regulated by: