Area of Law: Tax Law
Answer # 180
Contribution limits and types of RRSP investmentsRegion: Ontario Answer # 180
There is a limit on the amount of money you can contribute to your RRSP each year, and there are a variety of RRSP investments from which to choose.
Your contribution limit is determined by your earned income, up-to a limit that is set by the Government of Canada. Canada Revenue Agency shows you how much contribution room you have available on the Notice of Assessment they send you after you file your previous years’ tax return.
The Government allows you to contribute 18% of your earned income from the previous year (minus any pension contributions), up-to a maximum set dollar limit. The dollar limits are:
- 2019 – $26,500
- 2020 – $27,230
For example, if your earned income was $45,000 in 2019, you can contribute a maximum of $8,100 to your RRSP in 2020, which is 18% of $45,000. However, if your earned income was $180,000 in 2019, you can only contribute a maximum of $27,230 to your RRSP in the 2020 tax year.
You are also allowed to add your unused RRSP contribution amount to your current contribution limit. For example, if you could have deposited $10,000 last year, but you only contributed $9000, you can add $1000 to your contribution limit for this year. The contribution limit that is shown on your Notice of Assessment includes the amount of your unused contribution. You can also find out what your RRSP contribution limit is by calling the Canada Revenue Agency TIPS hotline. If you belong to a company pension plan or deferred profit-sharing plan, your RRSP contribution limit will be lower than these general limits. If you contribute more than the amount allowed, you may have to pay a penalty.
Types of RRSP investments
The money that you put into an RRSP can be invested in a number of different ways. This includes:
- mutual funds,
- term deposits,
- bonds, or
You should make sure that the investment you would like to buy is RRSP eligible.
What you cannot deduct
While there are many types of RRSP investments that can be used as a deduction, it is also important to know that there are certain costs to contributing to an RRSP that cannot be used as a deduction when filing your income tax. You cannot deduct:
- the interest you paid on money you borrowed to contribute to an RRSP
- amounts you pay for administration services for an RRSP
- brokerage fees charged to buy and dispose of securities within a trusteed RRSP
- any capital losses within your RRSP
You should be sure to check the details of the RRSP investment you decide to buy to determine whether your investment suits your needs.
If you are unsure how to calculate your contribution limit, or if you do not know what type of investment is best for you, contact an investment advisor for advice.
For general information, contact Canada Revenue Agency.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
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