IndividualsTax laws permit you, for any given year, to contribute an amount equal to 18% of your eligible income from the previous year to your or your spouse’s RRSP, up to a maximum of $19,000 in 2007, $20,000 in 2008, $21,000 in 2009 and $22,000 in 2010, less the pension adjustment (PA) for the same year. Your employer calculates the PA based on the benefits accumulated in your name in a supplemental pension plan or a Deferred Profit-Sharing Plan (DPSP).
You can increase your RRSP contribution by using your unused contribution room from previous years and making a surplus contribution.
This information (annual contribution, unused contribution room and pension adjustment) appears in the RRSP Deduction Limit Statement section of the Notice of Assessment that the Canada Revenue Agency (CRA) sends you each year after receiving your income tax return.
You must make your contributions for a single tax year before the end of the first 60 days of the following year.
Notice of assessment
Individuals who file income tax returns with the federal government receive a notice of assessment, like the one shown below, several weeks later indicating their personal information.
The important number is in the last line: “RRSP deduction limit for 2011”. This is the amount you should contribute before March 1, 2012 to benefit from a deduction in the computation of your taxable income for 2011.
Note that this notice combines all your unused RRSP contribution room since 1991, which can be carried forward indefinitely.
The different pension adjustments (PA, PSPA, PAR), only concern workers who contribute to a private pension plan (also called “pension fund”) with their employer.
The second part of this notice indicates contributions already paid into an RRSP but not yet deducted because of a requirement or by choice. This amount (B) can be carried forward and deducted in a subsequent return, up to the maximum deductible granted for the year in question.
Note that if the result of B (unused contributions) minus A (RRSP deduction limit) is greater than $2,000, you could have to pay a penalty.
Example of a notice of assessment:
|2010 RRSP Deduction Limit Statement|
|RRSP deduction limit for 2009||
|Minus: allowable RRSP contributions deducted in 2009||
|Unused RRSP deduction limit at the end of 2009||
|Plus: 18% of 2009 earned income of $40,000 (max. $22,000)||
|Minus: 2009 pension adjustment (PA)||
|Minus: 2010 net past service pension adjustment (PSPA)||
|Plus: 2010 pension adjustment reversal (PAR)||
|RRSP deduction limit for 2010||
You have $0 in unused RRSP contributions (B) for 2010. If this amount is greater than the amount for (A) above, you could have to pay a penalty.
Use your unused contribution room
If, for a given tax year, you do not make your maximum RRSP contribution (generally 18% of your income for the preceding year), you will have unused contribution room that you can use in subsequent tax years.
For example, if your maximum contribution for a year is $12,000 but you only contribute $2,000 to your RRSP, you may use the unused $10,000 portion to increase your contribution the following year for a total of $22,000 (assuming your income hasn’t changed).
In other words, when you use it, your unused contribution room lets you exceed your maximum annual limit, which is $19,000.
Information about your unused contribution room appears in the RRSP Deduction Limit Statement section of the Notice of Assessment that you receive every year from the Canada Revenue Agency.
If you should come into some money unexpectedly, (inheritance, lottery winnings, bonus or other) it may be wise to use your unused contribution room and put this money in your RRSP. In some cases, you can even borrow to use your unused contribution room.
By law, you are allowed to contribute up to $2,000 over your maximum, without penalty. The exceeding amount cannot be deducted from your taxable income for the current year but it can be deducted for subsequent years.