Unused RRSP Contributions confusion

by Anonymous Guest

NOTICE: This is not financial or legal advice. This is for educational purposes only.

My most recent Notice of Assessment from the Canada Revenue Agency (CRA) has left me dazed and confused (well nothing new there)! The assessment includes my RRSP Deduction Limit Statement which, at the very bottom, tells me “You have $6800 (B) of unused RRSP contributions available“.

So I went looking for information about what this really means and it was not easy to find. First of all we need to clarify the CRA’s use of the terms “deduction” and “contribution”. We have several items to consider:

– RRSP deduction limit
– Unused RRSP deduction limit
– RRSP contributions
– Unused RRSP contributions

What is most confusing about the CRA’s Notice of Assessment is that many people will mistake the “unused RRSP contributions” listed at the bottom as being “unused RRSP deductions”. But these unused RRSP contributions are contributions that you actually made in a previous year but did not claim as a deduction against your income, so you can now still use them to reduce your taxable income in a future year.

But be careful because this now reduces your maximum contribution limit. So what you really want to figure out is not what your RRSP Deduction Limit is, but what you RRSP Contribution Limit is, because if you over contribute you will have to pay tax on the excess contributions which defeats the purpose of putting money into an RRSP. Its actually a very simple calculation, so here it is:

RRSP Deduction Limit for current year (A)
MINUS Unused RRSP Contributions for current year (B)
EQUALS Maximum RRSP Contribution you should make for current year.

Simple example:

RRSP Deduction Limit for current year (A) = $16,800

Unused RRSP Contributions for current year (B) = $6,800

Maximum RRSP Contribution you should make for current year = $16,800 – $6,800 = $10,000

So for this example, do not exceed RRSP contributions of $10,000.

Also note (for the example above) that if you do not make any contributions at all to your RRSP for the current year, you can still deduct up to a maximum of $6,800 from your income. Or to say it another way, you can apply the previous Unused RRSP Contributions against your current income even if you did not make any contributions for the current year.

Hope this helps you be less confused.

NOTICE: This is not financial or legal advice. This is for educational purposes only.

 

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One thought on “Unused RRSP Contributions confusion

  1. I was told I do not and cannot have acecss to my LIRA pension until I am 65 years old. The only way would be if you could prove hardship or you were terminally ill & you would need Dr’s verification. I take mine once a year a small amount compared to what I feel I should be able to take out. This is for my BC Govt pension and our beloved Gordon Campbell put a 6% only per year cap on our pensions in LIRA’s-I am sure he is taking alot more than 6%. Oh well such is life of the poor.

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