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Contributing to an RRSP is one of the most significant Retirement and tax planning options available to Canadian taxpayers. By making contributions to a plan not later than 60 days after the current year end, a deduction from income can be taken in the current year for the amount within certain limitations. An immediate tax saving results and the tax refund can be reinvested or used for other purposes. More importantly, income earned on contributions accumulates tax-free, until withdrawn, in the RRSP And it is this tax-free compounding over the years that is one of the main financial advantages provided by an RRSP. When contributions are with-drawn, they are included in income; however, given that this will normally occur during the taxpayer’s retirement years, they will often be taxed at a lower marginal rate as retirees tend to have less income than they did during their working years. Further, withdrawals can be staged to occur in lower-income years to minimize the tax impact of withdrawal.

CONTRIBUTION LIMITS :  An RRSP is part of a comprehensive individual retirement savings system, which has a combined annual contribution limit to all relevant plans of 18% of earned income (based on the previous year’s income), up to certain dollar limits for each year. This uniform limit of 18% of earnings applies to employer-sponsored registered pension plans (RPPs), pooled registered pension plans (PRPPs), deferred profit sharing plans (DPSPs), and Registered retirement savings plans (RRSPs). That is, annual aggregate contributions to these retirement savings vehicles each year cannot exceed the prescribed limits, such that amounts contributed to an employer-sponsored RPP and deducted from an employee’s pay will reduce the amount that can be contributed to his or her RRSP.

A taxpayer’s RRSP dollar limit is defined as being the money purchase limit for the immediately preceding calendar year. It was $24,930 for 2015, $25,370 for 2016, $26,010 for 2017, $26,230 for 2018 and $26,500 for 2019.

Note that since the contribution limit will be the lesser of the RRSP dollar limit for the current year and 18% of earned income for the immediately preceding year, there is, for years in which the RRSP dollar limit changes, a one-year time lag between the earned income limit and the RRSP dollar limit.

Calculate your RRSP numbers here.

What is a Spousal RRSP:  Deductible contributions may also be made to a registered retirement savings plan for the Benefit of a spouse or common-law partner, which provides a retirement income-splitting opportunity. If part the spouse or common-law partner will have lower income at the time the funds are withdrawn and, therefore, be in a lower tax rate bracket, it may be more advantageous to contribute funds to a spousal RRSP. In addition, annuity payments received from a spousal RRSP can be qualifying income for the spouse’s (or common-law partner’s) pension credit.

If funds are withdrawn from any spousal RRSP, you will be required to include in your income an amount equal to your contributions to a spousal plan in the year of withdrawal and the two immediately preceding years. This will apply irrespective of whether your spouse or common-law partner has made his/her own contributions to the plan and even if your contributions were made to one spousal plan but the withdrawal was from another. If the value of the assets in the spousal RRSP is less than the amount contributed to it (that is if there is a loss recorded by the plan), only the lesser amount need be included in your income.

However, your beneficiary spouse or common-law partner may make a withdrawal from a spousal RRSP without attracting tax in your (contributing spouse’s) hands when at the time of the withdrawal the contributing and beneficiary spouse or common-law partner were living separate and apart by reason of marriage break-down. An RRSP can also be split on a marriage or relationship breakdown. Funds may be transferred without tax consequences to a spouse’s or common-law partner’s plan after the breakdown of the marriage if the transfer is made pursuant to a decree, order, or judgment of a court or a Written separation agreement.

Where a spousal RRSP has been converted to retirement income, such as through the purchase of an annuity, or to a RRIF, the minimum required annual payments can be made to the spouse or common-law partner without attracting tax in the contributor’s hands, even if the conversion occurred within the preceding three years.

UNDER-CONTRIBUTIONS AND OVER-CONTRIBUTIONS: Where your RRSP contributions deducted for a particular year are less than your annual contribution limit (the maximum you could have contributed based on 18% of prior year earned income up to the dollar maximum) for that year, the difference accumulates and carries forward to provide RRSP contribution room in the following years in addition to that arising that year from the immediately prior year’s earned income. The total you can deduct in any given year, which includes any accumulated carry forward, is calculated for you and reported to you on your annual Notice of Assessment from the CRA.

On the other hand, contributions in excess of your total accumulated RRSP contribution room are not only not deductible, but to the extent they exceed $2,000 at the end of any month, are subject to a punitive monthly penalty tax until they are withdrawn from the RRSP (which can be done tax-free, since they were not deducted) or until sufficient new contribution room becomes available to shelter them. The $2,000 is a cumulative total for all years and is intended to provide a margin of protection against inadvertent over contributions. However, some taxpayers use it simply to obtain the advantages of tax-free compounding of income on an additional $2,000 of capital.

How can I contribute into my RRSP: If an individual hasn’t “maxed out” on RRSP contributions, he or she is entitled to make an additional contribution over and above the normal limit for the year. “Unused” RRSP contribution limits can be carried forward indefinitely to future years.

Of course, a barrier to this strategy could be finding the means to make a catch-up contribution. Possible sources for a catch-up contribution could include the following:

Inheritances:  (or perhaps an “advance” on an inheritance) If an individual receives an advance on an inheritance as a gift rather than as a loan, and he or she is married when this occurs, it should be ensured that (where possible) the advance is documented so that the gifts, and subsequent income earned on it, are not subject to a spousal claim in the event of marital difficulties.

“Contributions in kind” : If investments are currently held outside of an RRSP but nevertheless qualify as an RRSP investment, they can be transferred into the plan, so their current value will qualify as an additional contribution. However, any appreciation at the point of transfer will be taxed as a capital gain, and capital losses sustained by virtue of the transfer will be disallowed.

An RRSP mortgage: The annuitant could have his/her RRSP make a loan secured by a mortgage on the annuitant’s home (or other Canadian real estate). The funds could then be “re-contributed” to the RRSP. This can be permissible if the mortgage loan from the RRSP is insured and the annuitant pays his/her RRSP interest at market rates in effect when the RRSP loan is made. A number of financial institutions offer pre-packaged plans which allow individuals to take advantage of this strategy. (This strategy can be used for other objectives apart from making a catch-up contribution, such as paying down an existing mortgage.)

RRSP returns are taxable or not : Profits from non-RRSP investments– By contributing the proceeds of the sale of a personally held investment to his/her RRSP, .the annuitant could not only shelter the gain itself, but secure additional deductions to shelter other sources of income (e.g., if only 50% of the gain is taxable because capital gains status applies).

Another factor to bear in mind is that the higher the marginal tax rate, the more effective an RRSP “catch-up” contribution will be. Accordingly, a low-income year may not be a good time to make a catch-up contribution. If an annuitant’s annual income is such that he or she is not “too far into” a particular tax bracket, it may be beneficial to make a series of RRSP contributions which take the individual down to the “bottom of the bracket”. (Another alternative could be to make a lump-sum contribution but defer the actual deduction until a year when a higher marginal tax rate applies.)

What is Pension Adjustment: 

Pension Adjustment

The PA reduces the RRSP deduction limit for the following year, but has no effect on the taxpayer’s income. It measures the value of all pension benefits accumulator by a taxpayer during the year with respect to an RPP or DPSP (but not a PRPP) and ensures that all deferred income plans to which an individual contributes are integrated. 

Benefits of RRSP Plan:

Home Buyer’s Plan

This plan allows a tax-payer and his/her spouse or common-law partner to each withdraw up to $25,000 from their RRSP to purchase their first home without having to pay tax on the withdrawal. Read more..


This plan allow a taxpayer and his/her spouse or common-law partner to each withdraw up to $10,000 per year and $20,000 over a four year period from their RRSP to finance their full-time education without having to pay tax on the withdrawal, provided they meet to following conditions:

Read This………………………


The Pension Adjustment (PA), the pension adjustment reversal (PAR), and the past service pension adjustment (PSPA) have an impact on the RRSP deduction limit.

Pension Adjustment- It reduces your RRSP contribution limit

The PA reduces the RRSP deduction limit for the following year, but has no effect on the taxpayer’s income. It measures the value of all pension benefits accumulator by a taxpayer during the year with respect to an RPP or DPSP (but not a PRPP) and ensures that all deferred income plans to which an individual contributes are integrated.

For DPSP the pension adjustment equal is to the total amount of contribution paid for the benefit of the employ by the employer during the year. Read more here…………..