RRSP contribution room is calculated based on Prior years earned income. RRSP contribution room is limited to the lower of 18% of prior years earned income for RRSP and $26,230 for 2018.
Earned income for RRSP consists of:
- Income from office or employment including all taxable benefits without any deductions.
- Income from a business (T2125)
- Income from the rent of real property
- Royalty income received
- Support payments received
- Research grants received
- Disability benefits received from either the CRA or the Quebec Pension Plan
*loss from business, property and spousal support deductions reduce the RRSP contribution room
Interest and dividends are not included in the calculation of earned income for RRSP this means that business owners who withdraw dividends rather then salary from their corporations are not able to make RRSP contributions.
Pension adjustment
Is a reduction in the RRSP contribution room as a result of an employer contribution to a deferred profit sharing plan (DPSP) and a registered pension plan (RPP) both for defined benefits and defined contribution plans. The deduction room is reduced since individuals can already deduct RPP and DPSP
Pension adjustment is calculated as follows
- For a DPSP = employer contributions
- For a defined contribution plan = Employer + Employee contributions
- For a defined benefit plan = ((9 x amount of benefit earned in the RPP)-600)
Please note that the pension adjustment for individuals who are members of a defined benefit plan can either increase or decrease depending on whether their plan vests or if they receive past service benefits.
RRSP Over contribution
RRSP over contribution is taxed at 1% of the total over contribution per month.
RRSP Withdrawal
When an RRSP is withdrawn if the withdrawal was previously deducted then it is added to the tax payers income and taxed on the incremental tax rate. When the RRSP is withdrawn there is also a withholding tax. The withholding tax is as follows
| 0-5000 | 10% |
| 5,001-15,000 | 20% |
| 15,000 and above | 30% |
RRSP contributions ca be withdrawn as part of a home buyers or a life long learners plan.
Home buyers plan
As of 2019 a maximum $35,000 can be withdrawn from a home buyers plan to fund the purchase of a home. The Home buyers plan must be repaid within 15 years. The home buyers plan can either be repaid each year, RRSP contributions can be designated towards repayment or it is added as taxable income.
To qualify for the home buyer’s withdrawal the tax payer must meet the following criteria.
- The withdrawal must be for a home that will be the taxpayer’s residence
- The taxpayer cannot have owned a home in the past 4 Calendar years
Life long learner plan
RRSP can withdrawal under the life long learner plan to fund education. The withdrawal period for the life long learner plan is limited to a maximum of $10,000 in a calendar year and $20,000 during the withdrawal period. The life long learner plan must be repaid within 10 years, the life long learners plan can either be repaid each year, RRSP contributions can be designated towards repayment or it is added as taxable income.
To qualify for the life long learner plan the tax payer must meet the following criteria.
Be enrolled or receive an offer to enrol before March of the following year on a full time basis at a designated educational institution.
Disclaimer
The information provided on this page is intended to provide general information.
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