If you’ve ever wondered how to quickly figure out how much you can contribute into your RRSP, this is the guide for you. The contribution limit is a simple calculation that the federal government uses based on your ‘earned’ income from the prior year. RRSP contributions go on line 208 of your federal tax return.
Your RRSP contribution limit can easily be found on your prior year’s Notice of Assessment from the CRA.
Who Can Contribute
Any Canadian can contribute towards their RRSP up to and including the year the individual turns 71.
Your current year RRSP contribution limit is calculated based on your earned income from the prior year. In 2013 the maximum RRSP deduction is $23,820. This number increases a bit each year with inflation. Since most people don’t have their RRSP limits completely maxed out, you likely have contribution room from prior years to carry forward. Therefore your limit could be higher than $23,820.
Timing of Contributions
As you likely know already, the cutoff for RRSP contributions is March 1 of each year. So for 2013 the deadline is March 3, 2014.
But did you know you can also deduct contributions from prior years? As long as they haven’t already been claimed on previous tax returns you can claim contributions made from January 1, 1991 to March 1.
So for the 2013 tax year you can claim any contributions made between January 1, 1991 and March 3, 2014.
Your Contribution Limit
An RRSP contribution limit is calculated based on your ‘earned’ income from the prior year. For most people it simply means their employment income but in some cases it may also mean business income, support payments received, CPP income or disability pension income. The contribution limit is calculated as:
18% of earned income from prior year
Less: pension adjustment (this is typically found on your T4)
Less: past service pension adjustment (if applicable)
Add: past service pension adjustment reversal (if applicable)
Add: unused deduction room carried forward from prior years
For those with a pension, you will likely have a pension adjustment from the prior year that can usually be found on your T4. For those without a pension, you’d likely only have 18% of your prior year earned income plus any unused contribution room from prior years.
Things You Can’t Deduct
– Admin services paid relating to your RRSP
– Brokerage fees paid to buy/sell any investments within your RRSP
– Interest paid on money borrowed to make an RRSP contribution (RRSP loans)
– Capital losses within an RRSP
Related: How does CRA Decide who to Audit?