Registered Retirement Savings Plans (RRSP) Contributions
The contributions made to your RRSP are fully deductible from your income reported on your tax return. Any income earned on your RRSP is tax deferred. That is, you only pay tax when amounts are withdrawn from your RRSP.
Annual Contribution Limit
Your contribution limit for 2016 is 18% of your 2015 earned income (to a maximum of $25,370) less the value of any benefits accrued to you in 2015 as part of your pension adjustment. Note that any unused RRSP contribution limits from prior years are also added to your contribution limit. To find out your contribution limit for 2016, simply look at your 2015 Notice of Assessment from the CRA and there is a section detailing the calculation of your RRSP limit. You can also find this information online as part of CRA’s “My Account” service.
Spousal RRSPs are a great method used as part of the tax planning process. Essentially, the higher income spouse makes a contribution to a lower tax rate spouse’s RRSP. The higher income spouse will then receive the deduction benefit for the contribution amount. When the funds are withdrawn from the RRSP, they are taxed on the lower tax rate individual’s return. Note that the contribution made to a spousal RRSP is based on the higher income spouse’s contribution limit, not a combination of the two.
Note that if you over-contribute to your RRSP, there may be applicable penalties. In order to avoid such penalties, ensure that your over-contributions do not exceed the cumulative limit of $2,000. RRSP over-contributions carry forward indefinitely.
Your RRSP contribution must be made on or before March 1, 2017 in order for your contribution to be deductible in the 2016 tax year.