Understanding Your RRSP contributions

My Finances - YOUR TAXES
The Notice of Assessment
Did you file your taxes last year? If you did, you’ll have received a
Notice of Assessment for 2009 from the Canada Revenue Agency
(CRA). This document contains a lot of useful information
about your RRSP contribution room—but you have to be able to
decipher it! Josette St-Amand, tax specialist, agreed to help us
understand the big picture.
Compiled by Danielle Bergeron
Desjardins and Me: How can the Notice
of Assessment help us define our own retirement savings strategy?
Josette St-Amand: Your Notice of Assessment tells you how much you can contribute to your RRSP for a given year, which
means how much you can deduct from
your taxable income. This information can
be found in the “2010 RRSP Deduction
Limit Statement” section. I’d like to draw
your attention to two lines in particular:
“A – RRSP deduction limit for 2010” and
“B – Unused RRSP contributions”.
Desjardins and Me: What exactly is the
“deduction limit”?
J.S.: The deduction limit is the maximum RRSP contribution amount you can
deduct from your taxable income in any
given year. If you don’t deduct the maximum for a given year, that extra space is
added to your contribution room1 and you
can use it later on. In our example, the
maximum 2010 RRSP deduction limit is
$5,253, which means that you can deduct
up to $5,253 in 2010.
Desjardins and Me: What is the “unused
RRSP contributions” amount on line B?
Claude Côté
Understanding Your
RRSP Contributions
J.S.: This amount is equal to any contributions you have made to
your RRSP or your spouse’s RRSP, for which you’ve received a tax
slip but haven’t applied the corresponding deduction on your tax
return. Unused contributions can be used to reduce your income
in a year when you can’t or don’t want to contribute to your RRSP.
All you have to do is enter the unused contribution amount you’d
like to apply when the time comes.
Desjardins and Me: What happens if you contribute more than
the amount indicated on line A?
J.S.: If you overcontribute, the amount entered on line B will be
higher than the amount on line A, and you’ll have excess contributions. If the difference between B and A is less than $2,000,
don’t worry about it. The CRA permits excess contributions up to
that amount. But if B is more than $2,000 higher than A, you may
be required to pay a tax.
Desjardins and Me: Could you give us an example?
J.S.: Let’s say you contribute $9,000 to your RRSP in June 2010,
but your deduction limit is only $5,253 (A), with unused RRSP
contributions of $1,200 (B). It would look like this:
Maximum eligible 2010 RRSP deduction (A)
Minus: unused contribution room (B)
Minus: 2010 contributions
Excess contributions
1. U
nused contribution room has been carried forward since 1991. On your Notice of Assessment, you’ll find your total contribution room, also called your “unused RRSP deduction limit” on line 3 of the Notice of Assessment.
Desjardins and Me
My Finances - YOUR TAXES
In this situation, you’d have $4,947 in excess contributions. Since the CRA will tolerate excess contributions up to $2,000, you’d have to pay the penalty or tax on $2,947
($4,947 – $2,000) for the seven remaining months of 2010, that is, $206.29.1 Your 2010
Notice of Assessment would include the following information:
1. RRSP deduction limit for 2010
2. Minus: Allowable RRSP contributions deducted for 2010 $5,253
3. Unused RRSP deduction limit at the end of 2010
4. Your 2011 contribution room $3,3532
5. Your RRSP deduction limit for 2011
$3,353 (A)
6. Your unused RRSP contributions available for 2011
$4,947 (B)
So, starting in 2011 you would no longer have to pay the tax, since your unused contribution room—the amount on line (B)—less your 2011 RRSP deduction limit (A), would
be $1,594.
Desjardins and Me: What can you do if you have excess contributions over $2,000?
J.S.: If you have excess contributions of more than $2,000, you can choose to do nothing, or you can withdraw a certain amount from your RRSP.
But don’t forget that, regardless of the solution you choose, you’ll still have to pay a
penalty tax for each month in which you have excess contributions of more than $2,000.
Time is money—so it’s best to quickly! Fill out the T1-OVP-S form and send it, along
with your payment, to the CRA no later than March 31, or interest will apply.
If you decide to take money out of your RRSP, any withdrawals will be added to your
taxable income. But when calculating your income, you may be eligible for a deduction
for a refund of unused RRSP contributions if you meet one of these conditions:
Section of the
Notice of Assessment for the 2009
taxation year
- You expected to be able to fully deduct
your contributions for the year you made
them or the year before; or
- You did not make the contributions, intending to later withdraw them and claim
the deduction.
The amount of the deduction is calculated
by attaching form T746 (for withdrawals
for which tax was withheld) or form
T3012A (approved by the CRA, if there
were no withholding taxes) to your tax
return. These forms are available on the
CRA Web site.
Desjardins and Me: Do you have
any last advice for us when it comes to
Notices of Assessment?
J.S.: Make sure that the amount on line A
is always bigger than the amount on line
B. If you contribute to an RRSP, you have
to find out how much contribution room
you’ve got. If you don’t, you might find
yourself taxed again, since the money you
take out of your RRSP is taxable. So don’t
hesitate to talk to your personal finance
advisor. They can help you.
2010 RRSP Deduction Limit Statement
1. RRSP deduction limit for 2009
2. Minus : Allowable RRSP contributions deducted for 2009
3. Unused RRSP deduction limit at the end of 2009
4. Plus : 18% of 2009 earned income of $50,000 = (max. $22,000) $9,000
5. Minus : 2009 pension adjustment
7. Minus : 2010 net past service pension adjustment
8. Plus : 2010 pension adjustment reversal
9. Your RRSP deduction limit for 2010 (A) $5,253
10. Y
ou have $1,200 (B) of unused RRSP contributions available for 2010. If this amount is more than the
amount (A) above, you may have to pay a tax on the excess contributions.
* Amounts marked by an asterisk cannot be less than 0.
1. ($2,947 X 1% X 7 months, since the contribution was made in June): $206.29.
2. Assuming that the earned income and 2010 pension adjustment are comparable to the previous year’s.
Desjardins and Me