Tax Tip: When To Hold Off Claiming RRSP Deductions

Tax Tip:

A common misconception amongst Canadian taxpayers is that you have to deduct all of the RRSP contributions you make each year.

Not true.

In fact, you can choose to deduct only a portion of your contribution each year, or none at all.

Holding off on claiming your deductions could be a good idea when you know that the taxes you need to pay on this year’s return will be less than those on next year’s return.

For example, if you maximized your RRSP deductions in 2023, and then got a pay increase at the beginning of 2024, you might wish to apply some of your RRSP deduction to next year’s return when your tax bill will be higher.

How RRSP Deductions Work

Contributions to a Registered Retirement Savings Plan (RRSP) are tax-deductible and can reduce your taxable income for the year you claim them. The amount you can claim is limited by your personal RRSP deduction limit, which is based on your earned income, pension adjustments, and any unused deduction room from prior years.

You have until the 60th day of the following year (e.g., Feb. 29 for the 2023 tax year) to make contributions that count for the previous tax year. Contributions made after that date can only be deducted in a future year.

Why You Might Delay Claiming Your Deduction

Instead of automatically claiming your RRSP deduction in the same year you contribute, it may be strategic to wait until a future tax year when:

Your income (and tax rate) is higher, which can increase your tax savings.

You expect a pay increase, bonus, or other income spike in the next year.

You want to smooth your taxable income across years to reduce your total lifetime tax burden.

Holding back some deductions can mean a bigger refund or lower taxes in a year when you’re in a higher marginal tax bracket.

Factors to Consider Before Deferring a Deduction

Before you decide to delay your RRSP deduction, think about:

• Your current and future marginal tax rates
• Whether you need an immediate refund or prefer to maximize long-term tax savings
• Your retirement timeline and income expectations

A financial advisor or tax expert can help tailor this strategy to your individual situation.

RRSP vs. Other Registered Accounts

Unlike RRSPs, Tax-Free Savings Accounts (TFSAs) don’t offer a tax deduction when you contribute, but withdrawals (including investment growth) are tax-free. In contrast, RRSPs provide a tax deduction up front but are taxable upon withdrawal in retirement.

Understanding how RRSPs fit into your broader savings strategy can help you make smarter planning decisions.