RRSP Contributions Can Reduce Tax Payable and Increase Refunds

An RRSP is a tax-deferred savings plan designed to help Canadians save for retirement. RRSP contributions can reduce taxable income in the year they are applied, which may reduce tax payable or increase refunds depending on the overall return.

Why RRSPs are useful

• Contributions may create a tax deduction.
• Investment growth inside an RRSP is generally sheltered from annual tax until withdrawal.

Who can contribute

• RRSP contribution generally starts once you have eligible earned income and meet age rules.
• Contributions are usually allowed up to the end of the year you turn 71 (with specific options for spousal RRSPs depending on the annuitant’s age).

Spousal RRSPs

Spousal RRSPs can be used as an income-splitting tool in households where one spouse has higher income. Withdrawals are taxed in the annuitant’s hands, subject to applicable rules.

Excess contributions

• Excess contributions can trigger penalty tax under certain conditions.
• Unused contributions may be left in the plan or withdrawn, depending on the situation.

RRSP contribution timing

Contribution deadlines are tied to the first 60 days of the year for applying to the prior tax year (for most taxpayers). Contribution room is shown on the Notice of Assessment/Reassessment.