Your RRSP contribution limit for 2019 is 18% of your 2018 earned income (to a maximum of $ 26,500) less the value of any benefits that accrued to you in 2018 as a member of a registered pension plan (RPP) or a deferred profit sharing plan (DPSP), which is your pension adjustment (PA). Your PA would have been reported by your employer on your 2018 T4 slip, and your 2018 Notice of Assessment should include the CRA's calculation of your 2019 contribution limit as well as any unused amounts carried forward from previous years. This information is also available on the CRA's online My Account service.
Your RRSP contribution must be made on or before March 2, 2020 to be deductible on your 2019 tax return. If you don't have the necessary funds, consider borrowing to make the contribution. Although interest on an RRSP loan is not deductible, borrowing may still make sense if you can repay the loan quickly. If you receive a tax refund, you can apply it to the loan to reduce the balance outstanding.
If you decide not to contribute for 2019, your ability to do so carries forward indefinitely. However, even if you don't need the deduction for 2019, you should still consider making the contribution if you have excess funds which would otherwise earn taxable income in your hands. You can claim the deduction in any future year and the income from the funds will accumulate tax-free in your RRSP.
If you have excess investment funds, make your RRSP contribution for 2020 as soon as possible in order to maximize the tax deferral of income earned in the plan. For 2020, the RRSP limit is the lesser of 18% of your 2019 earned income - less your 2019 PA - or $27,230.
You can also make a one-time overcontribution to your RRSP. Penalties do not apply if the total overcontribution in your plan is less than $2,000. As noted above, income from the overcontribution will accumulate tax-free in your RRSP. You should keep in mind that the CRA tracks RRSP overcontributions, and penalties apply on most overcontributions in excess of $2,000. Speak with a trusted BDO tax advisor today for personalized advice.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of January 20, 2020.