Every year we have earned income, we earn RRSP contribution room; 18% of your earned income to the allowable maximum for the tax-year. When you contribute to your RRSP throughout the tax year, whatever you don’t use of your contribution room rolls over into the next tax year, to be added to the current 18%.
The remaining contribution room is different from unused RRSP contributions. These are RRSP contributions you made but didn’t use to reduce your taxable income. RRSP contributions are not taxed when you deposit them into your investment account, they are taxed when you take them out in retirement; their tax is “deferred”.
What is My RRSP Contribution Room?
The Canada Revenue Agency (CRA) sets the limit on how much you can contribute to your RRSP. You can contribute less money to your fund, but you cannot contribute more than the maximum per year or remaining contribution room. The maximum is a percentage of your income.
If this is the first year you earn income, and your income was $30,000, your contribution room is a maximum of 18% of your total income which is $5,400. That is the maximum amount you can contribute.
CRA have set an annual RRSP contribution limit. If your 18% of total income is higher than the CRA annual limit, you will not be able to contribute in excess of this limit.
Nadine’s income in 2020 was $160,000. She has $10,000 carry forward contribution room from prior years.
Her current contribution room = carry forward room + 18% of her income = 18% of this year’s income = 18% x $160,000 = $28,800 > the annual limit
Nadine will not be able to add the $28,800 to her contribution room since the maximum annual limit for 2020 is $27,830. So, Nadine’s current contribution room = $10,000 + $27,830 = $37,830
Remember that the money you contribute to your RRSPs is tax deferred. You deduct the contribution from your income, and will instead be taxed on this amount when you withdraw the money in retirement.
What Happens to Remaining RRSP Contribution Room?
Remaining RRSP contributions from the previous year roll over to this year. That means if you didn’t quite manage to maximize your contributions, you can still catch up. Be sure to log onto your CRA My Account, prior to the contribution deadline, to confirm your available amount of room.
Do I Need to Report My Contribution Room?
Yes, when you file your taxes you will need to report your RRSP contribution room. The carry-forward amount is brought directly into your current return from the previous year by using the AFR; or, you can also find it on your Notice of Assessment from the previous tax year. This information is reported on Schedule 7 of your tax return.
What If I Have RRSP Contributions that I did not report?
If you’ve already filed your tax return and did not report some of the RRSP contributions you made in the tax-year, your remaining contribution room will be incorrect. You will need to file an adjustment with the CRA as soon as possible to correct your mistake and make sure that all of your RRSP contributions are accounted for in the appropriate tax year they were made.
Where Can I Find My Remaining Contribution Room Balance?
If you’ve filed your tax returns, you will have a record of the remaining RRSP contribution room that you have saved up. Your last Notice of Assessment should have a RRSP Deduction Limit Statement which explains how much contribution room you have remaining last year and in previous years.
If you don’t have a copy of your Notice of Assessment, you can also find the details about your contribution limit on your CRA My Account. If you’ve previously registered for an account, all you need to do is sign in and find the section called “RRSP and TFSA”; your remaining limits for both investment vehicles will be found there.
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