Contributing
A RRSP deduction limit is the maximum amount of RRSP contributions that can be claimed on a tax return for a given tax year.
A deduction limit is calculated as the unused deduction limit from the prior year (which includes all unused deductions going back 10 years), plus 18% of a person's earned income from the previous calendar year up to a specified maximum, minus any pension adjustment (PA) and past service pension adjustment (PSPA), plus pension adjustment reversals (PAR). The CRA calculates the RRSP deduction limit for the next year and prints it on every Notice of Assessment or Reassessment, provided the taxpayer is 71 year or younger. It is also recalculated and a copy mailed in certain cases such as when a PSPA or PAR is issued.
The specified maximum has been rising as shown in the table below.
| Year | Contribution Limit |
|---|---|
| 2002 | $13,500 |
| 2003 | $14,500 |
| 2004 | $15,500 |
| 2005 | $16,500 |
| 2006 | $18,000 |
| 2007 | $19,000 |
| 2008 | $20,000 |
| 2009 | $21,000 |
| 2010 | $22,000 |
| 2011 | $22,450 |
| 2012 | $22,970 |
| 2013 | $23,820 |
After 2010 the RRSP contribution limit is indexed to the annual increase in the average wage.
After filing a tax return (or any adjustments to the tax return), each tax payer receives a Notice of (Re)Assessment from the Canada Revenue Agency, indicating their new RRSP deduction limit.
While it is possible to contribute more than the contributor's deduction limit, it is generally not advised as the excess amount (presently $2,000 over the deduction limit) is subject to a significant penalty tax removing all benefits (1% per month on the overage amount).
RRSP contributions within the first 60 days of the tax year (which may or may not be the calendar year) must be reported on the previous year's return, according to the Income Tax Act. Such contributions may also be used as deduction for the previous tax year. Note that reporting and using are two different things. All other contributions may be used in the same tax year or held for future use.
Read more about this topic: Registered Retirement Savings Plan
Famous quotes containing the word contributing:
“[Girls] study under the paralyzing idea that their acquirements cannot be brought into practical use. They may subserve the purposes of promoting individual domestic pleasure and social enjoyment in conversation, but what are they in comparison with the grand stimulation of independence and self- reliance, of the capability of contributing to the comfort and happiness of those whom they love as their own souls?”
—Sarah M. Grimke (1792–1873)
“But then in what way are things called good? They do not seem to be like the things that only chance to have the same name. Are goods one then by being derived from one good or by all contributing to one good, or are they rather one by analogy? Certainly as sight is in the body, so is reason in the soul, and so on in other cases.”
—Aristotle (384–322 B.C.)