You and your RRSP

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Your Finances with Stephen Maltby

Your RRSP contribution limit for a year is 18% of your “earned income” for the prior year to a maximum of $23,820 for 2013 ($24,270 for 2014), minus your pension adjustment, plus any unused contribution room from prior years. Earned income includes salary or bonus remuneration and rental income but does not include passive investment income such as dividends, interest and capital gains. To claim a deduction for a given tax year, contributions can be made at any time during the year or within 60 days of year end (by March 3, 2014 for the 2013 tax year). To the extent that contributions are less than the limit in a year, the unused RRSP contribution room can be carried forward and contributions can be made in a future year. Since contributions in excess of the limits (plus a $2,000 over contribution allowance) can attract penalties, be sure to check your available RRSP contribution room before putting funds into a plan.

You can claim a deduction for contributions that you make to your own RRSP or to a spousal or common-law partner RRSP.

If you have kids under 18 who earn money through part-time or summer jobs, encourage them to file a tax return to report their earned income to the CRA, creating RRSP contribution room. They can then choose to either make an RRSP contribution with their earnings or, at the very least, build up that RRSP contribution room for use in a future year, perhaps waiting until their income becomes taxable.|

If you are over age 71, although you can no longer contribute to your own RRSP, you can still contribute to a spousal or common-law partner RRSP if you have a spouse or common-law partner who is 71 or younger. This would only be applicable if you have RRSP contribution room, either because you haven’t contributed the maximum allowed during your working years or you continue to generate new room annually through earned income.

Make a cash-less contribution

If you don’t have the cash available to make an RRSP contribution, you can transfer investments “in kind” from a non-registered account to your RRSP. You’ll get an RRSP contribution slip for the fair market value of the investment at the time of transfer. Be forewarned, however, that any accrued capital gains will be realized on investments that you transfer to your RRSP.

It may at first glance be tempting to transfer an investment with an accrued loss to your RRSP (or TFSA, for that matter) to realize the loss without actually disposing of the investment. Unfortunately, the Income Tax Act specifically prohibits a loss from being recognized on such a transfer.

One option, however, may be to consider selling the investment with the accrued loss and contributing the cash from the sale into your RRSP (or TFSA). If you want, you can then buy back the investment inside your RRSP (or TFSA), but be sure to wait at least 30 days because of the “superficial loss rule.” This rule prohibits you from claiming a loss when you sell property and buy it back within 30 days.

If you anticipate that you will be in a lower tax bracket in your retirement years, investing in an RRSP may be preferable to a TFSA. You might even consider withdrawing funds on a tax-free basis from your TFSA and contributing the proceeds to your RRSP. You could then re-contribute the amount to your TFSA in a later year once your RRSP contributions are maximized and additional cash becomes available.

If you’re currently making accelerated payments on your mortgage or other debt, consider whether making RRSP contributions might be a better use of your cash. RRSPs may be a better option than paying down debt when the rate of return on RRSP investments is expected to be greater than the rate of interest on debt.  

You don’t need to claim the deduction in the year contributions are made and as long as you have the necessary RRSP contribution room you will not be penalized, even if your contribution otherwise exceeds the posted yearly limits. It may make sense, therefore, to defer claiming a deduction for your RRSP contribution if you are relatively certain your marginal tax rate for a coming year will be significantly higher, so you can boost the tax benefit associated with that deduction.


Stephen Maltby is an Investment Adviser and Chartered Accountant with CIBC Wood Gundy. He has been in the financial services industry for more then 30 years and has held various accounting, investment and management positions with several accounting and investment firms over the years.He is in addition to his Advisor role a First Vice-President and Executive Director Atlantic Canada, CIBC Wood Gundy.


Organizations: CIBC Wood Gundy

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