The amount of RRSP contributions that you can deduct based on your RRSP deduction limit, which appears on your latest notice of assessment or notice of reassessment, or on a T1028.
Under subsection 146(1), the maximum RRSP contribution a taxpayer who has not participated in an Registered Pension Plan (RPP) or a Deferred Profit Sharing Plans (DPSP), is calculated by formula
|A||Unused RRSP deduction room carried forward from the previous year|
|B||The lesser of 18% of taxpayer’s “earned income” for the preceding year, to an annual maximum
(Less): Prior year’s pension adjustment
|R||Your pension adjustment reversal (PAR) (if applicable)|
|C||Your net past service pension adjustment (PSPA) (if applicable)|
What is “earned income”? ITA – 146(1)
RRSP contribution room is based on “earned income”. Generally, earned income includes a taxpayer’s income (earned while the taxpayer was resident in Canada).
|Net employment income||Union and professional dues||Pension income (including CPP/QPP and OAS)|
|Business income (either alone or as an active partner)||Business loss (either alone or as an active partner)||Retiring allowances and taxable DPSP payments|
|Net rental income from real or immovable property||Net rental loss from real or immovable property||Amounts received from RRSP and RRIF|
|Taxable support payments received||Deductible support payments made||Death benefits|
|Qualifying performance income from an amateur athlete trust.|
|CPP or QPP disability benefits|
|Royalty income regarding a work or invention of which the taxpayer was the author or inventor|
The annual contribution limits for RRSP ITA – 146(1)
Maximum deduction limit:
Example: Minh makes RRSP contributions of $11,000 in 2020. His unused RRSP deduction room carried forward to 2020 from prior years is $1,000. His income for 2019 includes:
- $120,000 employment income
- $5,500 pension adjustment
- $1,200 interest income
- $35,000 rental loss.
He is not a member of an RPP.
Minh’s RRSP deduction limit for 2020 would be calculated as follows (using the formula at the top of the page):
A: $1,000 (his unused RRSP deduction room carried forward from previous year) plus
B: $9,800 which is calculated as follows:
- The lesser of
- $15,300 prior year earned income (18% X prior year earned income of $85,000 ($120,000- $35,000)) and
- $27,230 (annual maximum deduction limit for 2020)
- Less $5,500 (pension adjustment)
Minh’s RRSP deduction limit for 2020 is $10,800. Because Minh makes $11,000 of potentially deductible contributions to RRSP, $1,200 in over-contributions may be carried forward and deducted in a future year.
References and Resources:
- ITA 146(1)
- “Tax Rates and Tools >> RPPs, RRSPs, DPSPs, and TFSAs – Annual limits”.
- T4040 “RRSPs and Other Registered Plans for Retirement [PDF]”
- Article – “RRSP MPP and DPSP Contribution Limits” (Author: TaxTips)