Claim your RRSP contribution on your 2017 tax return

March 1, 2018
is the deadline to contribute to your RRSP so you can claim that contribution on your tax return.

How much can you contribute?

Your maximum contribution is calculated over your earned income. Earned income includes any money made from employment (wages and tips) as well as things like alimony and rental income. Investment income, which encompasses dividends, interest, and capital gains are not included in the earned income calculation.

Check Revenue Canada’s Form T1023 -Calculation of Earned Income, it outlines all sources of earned income.

The maximum contribution is the lower of;

  • 18% of your earned income from the previous year, or
  • The maximum annual contribution limit for the taxation year less
  • Any company sponsored pension plan contributions (PA – pension adjustment)

For 2018 tax year (2017 earned income) the maximum contribution to your RRSP is $26,230.

What if you contribute beyond the maximum?

You’ll be penalized for any contribution amount in excess of $2,000.  The fine can be 1% of the over-contribution per month that remains in your RRSP.

The $2,000 lifetime over contribution allowance applies to those who have reached age 18 or older. 

If you haven’t contributed in prior years, the unused contribution room can be carried forward to subsequent years. If you are unable to maximize your RRSP contribution this year, you can make up the difference in later years. This means that if you are in a low income year you can start saving now and claim the deduction during years when income is higher.

Can I contribute to my spouse RRSP?

Tax on passive investment image

Yes. You can contribute you to your spouse’s RRSP and still get the deduction. To know how much carry forward contribution you have check the Notice of Assessment that Canada Revenue Agency sent you last year. If you don’t have your Notice of Assessment, then you can contact your accountant to calculate your limit.

Can you withdraw from your RRSP tax free?

Yes. In only two situations:

  1. The Home Buyers’ Plan (HBP) allows you to withdraw from your RRSP up to $25,000 if you are a first time home buyer to buy or build a qualified home for yourself or for a related person with disability. The government gives you up to 15 years to repay.
  2. You can also withdraw if you are paying for education or training expenses (Lifelong Learning Plan LLP).

You can withdraw funds from your RRSP however you might want to think twice before withdrawing.

Firstly, the amount you withdraw is taxable income. Additionally, you pay a withholding tax (for up to $ 5,000 the rate is 10%, for up to $15,000 the rate is 20% and over 15,000 the rate is 30%); your financial institution retains the tax and pays it directly to the government on your behalf. You should  receive T4RRSP from your financial institution.

RRSP taxable contribution

Don't delay your contribution,
take action now

  • Your contributions are tax deductible
  • Your savings grow tax free
  • You can convert your RRSP into regular payments when you retire
  • A spousal RRSP can reduce your combined tax burden
  • You can borrow from your RRSP to buy your first home

Start contributing to your RRSP as  early as possible and your retirement nest will benefit.

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