Tax Tip – Make a contribution to your RRSP to deduct on your 2018 tax return

February 08, 2019

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Your RRSP contribution limit for 2018 is 18% of your 2017 earned income (to a maximum of $ 26,230) less the value of any benefits that accrued to you in 2017 as a member of a Registered Pension Plan or a Deferred Profit Sharing Plan (your Pension Adjustment — PA). Your PA was reported by your employer on your 2017 T4 slip. Also, your 2017 Notice of Assessment should include the CRA’s calculation of your 2018 contribution limit, with any unused amounts carried forward from previous years. This information is also available on the CRA’s “My Account” service. Your RRSP contribution must be made on or before March 1, 2019 to be deductible on your 2018 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 2018, your ability to do so carries forward indefinitely. However, even if you don’t need the deduction for 2018, 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. The income from the funds will accumulate tax-free in your RRSP.

If you have excess investment funds, make your RRSP contribution for 2019 as soon as possible, to maximize the tax deferral of income earned in the plan. For 2019, the RRSP limit is the lesser of 18% of your 2018 earned income (less your 2018 PA) or $26,500.

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 22, 2019.