Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
In Canada, a Registered Retirement Savings Plan (RRSP) is a great retirement savings vehicle. Since they're tax-advantaged accounts, they are almost like a gift from the government! But if all the talk about contribution and deduction limits has your head spinning — you've come to the right place. There are two components to RRSP limits: the RRSP deduction limit and the individual contribution limit. Here's what you should know about them.
What is the RRSP contribution limit?
The RRSP Contribution limit is the maximum amount a taxpayer is allowed to deposit into an RRSP annually. The contribution limit is unique to you, it takes into account this year's deduction limit and any past unused contributions from previous years. Contributions made to an RRSP are tax deductions, which reduce the amount of income tax you'll pay. In addition, while the funds are in the RRSP, investment earnings are tax-sheltered; you do not have to include them on the income tax until you withdraw the funds.
You can have more than one RRSP account. It's possible to have “regular” RRSP accounts in your name, and also contribute to a “spousal” RRSP, which is set up in your spouse’s name, and you make the contributions and receive the tax deduction. There are some specific rules around withdrawals from spousal RRSPs that you should know in addition to contribution limits.
What is the RRSP deduction limit?
For 2019 the RRSP deduction limit is $26,500, the amount may increase annually. For 2018 the limit was $26,500. Contributions to an RRSP reduce the amount of income tax individuals must pay each year, so the Canada Revenue Agency (CRA) sets an annual limit on the number of contributions each eligible taxpayer can make to RRSPs. The deduction limit refers to this year's limit rather than taking into account any unused contributions from previous years. The RRSP deduction limit has gone up over time.
Past RRSP Deduction Limits
|Year||RRSP Deduction Limit|
The 2019 deduction limit
The RRSP deduction limit for 2019 is 18% of a taxpayer’s pre-tax earned income for 2018 or $26,500 whichever is less. For example, if you earned $60,000 in 2018, your RRSP deduction limit is 18% x $60,000=$10,800. This is less than the maximum deduction limit. If you earned $150,000 your deduction limit would be capped at the max limit of $26,500 as it's less than 18% of your income ($27,000).
However, if your employer has a Registered Pension Plan or Deferred Profit-Sharing Plan, those contributions reduce the amount you can contribute to an RRSP. Those amounts are recorded on the T4 you receive from your employer at tax time and are reported in Box 52. You report that amount on line 206 of the Income Tax T1 General.
If you have both a regular RRSP and a spousal RRSP, the deduction limit is the maximum amount you can contribute to all your accounts combined. The 2020 RRSP deduction limit won't be announced until late November early December of 2019.
RRSP deduction limit vs contribution limit
The RRSP deduction limit differs from the contribution limit as it does not take into account past unused RRSP contributions. The RRSP deduction limit is always 18% of pre-tax earnings from the previous tax year, or the CRA established limit, whichever is less.
Most people don't make the maximum RRSP contribution every year. Unless you max out your contributions each year — your contribution limit and your deduction limit will be the same. The RRSP contribution limit takes into account your current year maximum contribution, plus any unused contribution room from previous years. An example will help.
Example contribution room calculation
Your contribution limit is the total of this years deduction limit and any unused contribution room you have. Here's an example: Jim is employed full-time and in 2018, he made $50,000 pre-tax. His employer does not provide any pension plan. Here’s what his calculation would look like: 18% of $50,000 or $26,500, whichever is less. Let's do the math. $50,000 x 18%=$9,000. That is less than the maximum limit of $26,500 so his RRSP deduction limit is $9,000.
Jim doesn’t have any pension adjustments, so his total deduction limit is $9,000. If Jim makes a $5000 contribution to his RRSP, he'll have $4,000 unused eligible contribution room.
In 2020, he'll be able to carry forward that $4,000 and add it to his deduction room. If his deduction room remains $9,000, he will be able to contribute a total of $13,000 to his RRSP ($9,000 + $4,000 carry forward=$13,000).
Certain transactions, such as transfers from another RRSP, a transfer due to relationship breakdown or the death of a spouse, retiring allowances or transfers of property do not affect your contribution room.
How to calculate RRSP contribution limit
The RRSP deduction limit is always 18% of your previous year’s pre-tax earnings or the amount set by CRA, whichever is less. Your RRSP contribution limit is individual because of the rollover of unused contribution room. To calculate your RRSP contribution room you will need to know how much you previously contributed as well as the contribution limits for each year. Rather than calculate your RRSP contribution limit yourself, there's a much easier way to find your contribution room.
How to find your RRSP contribution limit
The CRA keeps track of your contribution limit for you. They will report it on your Notice of Assessment each year under the heading “Available Contribution Limit”. The Notice of Assessment is the summary you receive from CRA after you file your taxes each year.
You can also check your RRSP contribution limit online. Set up an account with CRA. Once you have the online account, you can check the status of your refund, check for benefit amounts, see previous years’ tax information and notices of assessment and make payments to your tax account. If you'd rather go the “old school” route, you can also call CRA at 1-800-267-6999 (in Canada and the USA).
Feeling adventurous? You can use Chart 3 in the RRSP Guide T4040, “RRSPs and Other Plans for Retirement”.
Where to report RRSP contributions
You report all RRSP contributions on line 208 of your T1 General Income Tax Return. Your financial institution will provide you with RRSP receipts.
Contributions made from March-December in each year are reported in the calendar year they are made. Contributions for the first 60 days of the next year can be reported in either calendar year.
Remember: Your contribution limit applies to the combined total of all contributions you make to the RRSPs in your name and any spousal accounts you contribute to.
What happens if I go over my contribution limit?
The CRA keeps track of RRSP contributions. If you exceed your contribution limit for the year, you have 3 options:
Withdraw the over-contribution. You will have to pay taxes on the full amount.
Complete a Schedule 7. Designate the amount of contribution you want to carry forward to a subsequent tax year. This amount will be reported on your Notice of Assessment and will reduce your contribution room for the next tax year.
Complete Schedule 7 if you have participated in the Homebuyers’ Plan or the Life Long Learning Plan and these contributions are a repayment.
It’s always best to consult a financial advisor or tax specialist if you have questions about your tax situation.
RRSP contribution age limit
The RRSP contribution age limit is 71. You can contribute to an RRSP until December 31 of the calendar year when you turn 71. If you have a spouse under the age of 71, you can make spousal contributions to their RRSP until December 31 of the year they turn 71 years old.
At the end of the year you or your partner turn 71, you must convert your RRSP to a Registered Retirement Income Fund (RRIF) or you can withdraw the full amount, but it must be included in income and will be subject to income tax at your marginal tax rate.
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