RRSP’s are a great way to save more money on your taxes. Many people do not know enough about their RRSP deduction limit, as well the tax savings you can receive on your return from them. RRSP deduction limits can be hard to understand for some as well as where do you find your RRSP deduction limit. In this article, Accufile will cover all these basis and help you get ahead on your next tax return.
What is a RRSP deduction limit?
The RRSP deduction limit is a maximum amount that an individual can pay into their RRSP fund then in turn use as a deduction on their tax return. This deduction limit is calculated based on your previous years income.
How do I find my RRSP deduction limit?
Your RRSP deduction limit can be found on two different documents. The first and most reliable document is your notice of assessment. Your Notice of Assessment is what the CRA sends to you once you have filed your tax return the previous year. Usually on the second page at the bottom you will find the RRSP section, and the calculation of your RRSP deduction limit. The second place you can find your RRSP deduction limit is on your previous tax return. However be careful as there have been many people in the past that have taken this number only to find the CRA re calculated the deduction limit and changed it on your notice of assessment. We always recommend to our clients to look only on their assessment for this amount.
How is my RRSP deduction limit calculated?
Your RRSP deduction limit is calculated based on your previous years income. The percentage of your income that they calculate is 18%. This is calculated to a maximum value of the total income of the past year. For example in 2019, the total RRSP calculation could not go over $26,500. So if your income times 18% managed to be over this amount then your maximum that you can use is $26,500. If your calculation was less, then the CRA will take the lesser amount.
In addition, to the 18% calculation, RRSP’s are able to carry forward. So if you do not exercise your RRSP’s for the give year, your total amount will carry forward onto the next year. See this example here:
Total income $54,000 * 18% = $9720.00
No RRSP contributions, then this $9720.00 will carry forward to the next year.
How much will I receive if I put RRSP’s on my tax return?
Yes this is a great question and totally depends on your income tax bracket. For many clients under $88,000 you would receive 30% of a refund based on your RRSP. For example, if you put $1000 into RRSP and claim this on your return, your estimated refund back from the RRSP alone would be $300. If you are making over the $88,000 then you will have 40% back on your return. But most important, you have to be employed and paying tax. Remember, you can only get back what you paid in tax for the year. For more information on this, contact us at [email protected] for more information.
Is there an age limit for RRSP contributions?
The RRSP deduction limit for your age is 71. You can contribute up until December 31 of the same year you turn 71.
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