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Registered Retirement Savings Plan (RRSP)


An RRSP is a retirement savings plan that an individual taxpayer establishes, that Canada Revenue Agency registers  and to which the taxpayer or the taxpayer’s spouse or common-law partner contributes. Deductible RRSP contributions can be used to reduce the taxpayer’s income tax payable.

Any income earned in the RRSP is usually exempt from tax as long as the funds remain in the plan; generally, the taxpayer has to pay tax when he/she receives payments from the plan.

The RRSP deduction is generally computed as the lesser of

  1. Actual contributions to be deducted;
  2. 18% of the prior year’s earned income less pension adjustment of the previous year plus the previous year’s unused contribution room;
  3. a prescribed RRSP amount for the year ($24,930 for year 2015, $25,370 for year 2016, and $26,010 for year 2017) less pension adjustment of the previous year plus the previous year’s unused contribution room.

Earned income includes:

  • employment income
  • business income (loss)
  • rental income (loss) from real property
  • royalties where the recipient is the author, composer or inventor
  • net research grants
  • CPP/QPP disability benefits received
  • net taxable alimony receipts

Pension adjustment (PA) is the value of the employee’s and employer’s contributions allocated to the individual in the employer’s RPP or DPSP. The PA decreases the taxpay’s RRSP contribution room. The PA amount can usually be found in Box 52 on the taxpayer’s T4 slip.

A few points to note regarding RRSP:

  • Unused contribution room can be carried forward indefinitely;
  • Undeducted RRSP contributions may also be carried forward;
  • Excess contribution of up to $2,000 allowed without penalty;
  • A taxpayer cannot have an RRSP beyond December 31 of the year in which he/she turns 71;

Spousal RRSP

A taxpayer can contribute (by using his/her own contribution room) to an RRSP where the spouse is the beneficiary.

Any withdrawal from the Spousal RRSP within two years will trigger attribution if the individual made a contribution to the plan in the current year or two preceding years. The amount attributed back to the taxpayer will be the lesser of

  • the amount withdraw;
  • the contributions made by the taxpayer in the three-year period.

The attributed amount will have to be included in the taxpayer’s income for the  year in which the withdraw is made.

For more information on RRSP, please visit Canada Revenue Agency website

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