What is my RRSP contribution limit?

Many financial institutions are focused on selling their customers RRSPs in the first 60 days of the year. This two-month push focuses on the potential tax savings of RRSP contributions, since you are allowed to claim the first 60 days of 2012 on your current tax return.

Though the majority of Canadians will not reach their RRSP contribution limit this year, it is important to understand how it is calculated and where to find the information.

You begin earning RRSP contribution room as soon as you begin filing a tax return. So if you worked at a burger joint when you were 16 and filed a tax return, this income was used to help calculate your RRSP contribution amount even though you were too young to actually open an RRSP. This is one reason we encourage younger Canadians to file their tax return, even if they only earned a little income during the year.

Your RRSP contribution amount is calculated each year as 18 per cent of your earned income up to a maximum amount. The maximum amount for 2011 is $22,450, which would affect only those taxpayers whose earned income is more than $124,722. If you do not use your contribution room in one year, you can carry forward the amount indefinitely. You do not lose it if you do not use it. Most people can start building contribution room as soon as they begin their careers, and they will have room available later when they are earning more income.

Your RRSP contribution limit is on your Notice of Assessment (NOA). The NOA is the summary of your tax return sent to you by the Canada Revenue Agency (CRA). If you cannot find your NOA, you can always call the CRA at 1-800-959-8281 to ask for the amount. But you need to have your SIN and last year’s tax return handy in order to access the information.

You are allowed a $2,000 over-contribution without being assessed a penalty, but you cannot deduct this amount. If you exceed it, there will be a penalty involved. If you have over-contributed, make sure you withdraw the excess as quickly as possible. If you get the excess certified by the CRA using Form T3012A, you can withdraw it without the financial institution having to withhold tax.

Doug Morgan
Master tax pro and franchise owner