RRSP contributions up in 2010

According to StatsCan, 93 per cent of tax filers were eligible to contribute to an RRSP in 2010, but only 26 per cent actually did so. The six million Canadian taxpayers who did contribute to RRSPs deposited $33.9 billion into their accounts. This may sound like an impressive number but it only represents about five per cent of the eligible contribution room available to taxpayers. This percentage is down slightly from 2009.

But overall contributions did increase across the country. Nunavut and Yukon had the largest increases, while Prince Edward Island had the smallest. Nova Scotia and Manitoba had the lowest median contribution amounts at $2,300. The numbers also showed Calgary contributors had the highest median RRSP contribution at $3,900, with Vancouver second ($3,400) and Toronto third ($3,380).

While there has been a lot of debate about whether people should be using RRSPs or Tax Free Savings Account (TFSA) for retirement, RRSPs remain one of the few tax shelters available to Canadians. Contributions made to your RRSP reduce your taxable income. The tax savings you realize from making a contribution depend on your marginal rate. For example, if you earn $50,000, you can expect about $220 in federal tax savings plus provincial savings for every $1,000 contributed.

RRSP contributions do not need to be large to garner tax savings. It may be beneficial to set up regular monthly payments, instead of making one large contribution at the end of the year. And if you are just starting to earn money, you begin building RRSP contribution room after your first tax filing. Although it may not seem very useful when you are working part-time and going to school, when you are earning more income you may appreciate the contribution capacity.

The RRSP deadline for your 2011 tax return is February 29, 2012. If you are facing a tax bill, consider your options before the deadline. An RRSP contribution may ease your tax pain.

Doug Morgan
Master tax pro and franchise owner