Browse topics

RRSP's (registered retirement savings plan) are a great way to save for your retirement, and save taxes at the same time. You can contribute up to your maximum deduction limit, plus $2,000.

Your RRSP contribution limit is determined by the amount of your income in the previous year, minus any amounts paid by your employer into an RPP (registered pension plan) on your behalf, up to a certain maximum. The unused limit accumulates over time. While it is wise to have a standard savings strategy, you may choose to defer the deduction of contributions until such time as you need to offset more income or avoid the social benefits clawback.

Are you just checking the impact of an RRSP contribution on this year's return? If you do not know what your deduction limit is off-hand, enter an amount in excess of your planned contribution. Remember to update the contribution limit before finalizing your return. As a reminder, put a note to that effect in the Notes section at the bottom of the navigation bar.

Ensure that you are not "over-deducting" your RRSP. If you expect a higher taxable income next year, or if you only need a certain amount to bring your taxes down to the lowest marginal rate or to nil, you may prefer to limit this RRSP deduction. The program will carry any undeducted amount forward. We recommend that you retain a record of this limit for your files.

Your RRSP must mature by the end of the year in which you turn 71. If your RRSP has matured, you have to either cash it in and pay income tax in that year on the amount you receive, or use the sums available to buy an annuity for life, an annuity spread over a number of years, or a registered retirement income fund (RRIF).

Contributing to a spousal RRSP means that the higher earner can reduce the tax bill right away while enabling the couple to benefit from splitting their income during retirement. The spousal RRSP is a good example of how income splitting can be a great tax saver. At retirement, when both spouses report the pension income from these savings, the combined tax is lower and both are eligible for the $2,000 pension deduction.

A spousal RRSP is an easy way to save tax even when saving for retirement is not the goal. Funds withdrawn from a spousal RRSP are taxed in the hands of the spouse if they are withdrawn 3 or more years after the contribution is made. Take advantage of this saving if your lower income spouse is planning to take time off from work to study, or to raise the family, for instance.

Is your spouse under age 71? Even though you may be over 71, you may continue to contribute to your spouse's RRSP, as long as they are not yet 71 and you have RRSP contribution room remaining.

If funds are available for only one spouse to contribute to an RRSP, the higher earner should make the contribution, thereby reducing tax by the higher tax rate. Consider splitting the contribution between a regular RRSP and a spousal RRSP. The spousal RRSP makes it possible for the higher income spouse to benefit from the higher tax deduction today and, at retirement, it facilitates more tax savings by splitting pension income, which provides a pension income credit of up to $2,000 each year.

Each year, a minimum amount must be repaid into your HBP. If you do not make a repayment this year, the minimum amount must be added as taxable income for the year. If your income for the year is low, this can be a good saving. Otherwise, not making your repayment could end up costing you more in tax than you originally saved.

You may make withdrawals from a labour-sponsored fund for purposes of the RRSP's home buyers' plan (HBP) once all available RRSP funds have been used.

If you have unused RRSP contributions made after 1990, which were refunded to you or your spouse or common-law partner in , you may be able to claim a deduction on line 232. This amount should be entered in Other deductions > Other deductions (line 232) > Other deductions not included in the CNIL. You must complete form T3012A (Tax deduction waiver on a refund of your unused RRSP contributions) or form T746 (Calculating your deduction for refund of unused RRSP contributions) in order to claim this deduction.

You may be able to transfer part or all of your retiring allowances to your RRSP. This is called a transfer and is in addition to any RRSP contribution you make based on your RRSP deduction limit for the year. Check the CRA's guide about RRSP's and Other Registered Plans for Retirement for more information about the amounts you can transfer.

For more tips concerning pensions, click here.

Browse Canada Tax Topics