Frankie Fenton CMA

RRSPs

The first two months of the calendar are the most popular time for making RRSP contributions.   Contributions made on or before March 1, 2011 can be deducted in the 2010 tax year, generally computed at 18% of prior year’s earned income.  The maximum deduction limit for the 2010 tax year is $22,000.  Note however, that if you have unused deduction room from prior years, your total available deduction limit for tax year 2010 may be higher.  It is often best to consult the RRSP Deduction Limit Statement of your latest Notice of Assessment to be sure, or phone the CRA automated phone service at 1-800-267-6999.

Contributions can also be made to a spousal RRSP.  The contributions must fit within the contributor’s RRSP deduction limit, and must also be deducted by the contributor.  They cannot be deducted by the spouse.

Sometimes, clerical errors can occur, and an individual may contribute more to their RRSP than their available deduction limit in a particular year.  Or it may be determined that contributions made in a particular year would serve a better tax advantage by being deducted in a subsequent tax year.  These are referred to as unused contributions.

Excess contributions (made in excess of the particular year’s deduction limit) of up to $2,000 are allowed, and form part of unused contributions to carry forward for deduction in the following year.  Note that excess contributions are subject to a  tax of 1% per month computed on the contributions made in excess of your RRSP deduction limit plus the $2,000 grace amount.

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