How to Calculate the RRSP Deduction Limit

You can work out your own RRSP deduction limit, or get that information from the CRA.
i Jupiterimages/Brand X Pictures/Getty Images

Registered Retirement Savings Plans are the Canadian equivalent of the Individual Retirement Accounts and 401(k)s used by Americans. It's not a bad arrangement: Invest for your retirement, earn tax-free profits, and get a tax deduction as the cherry on top. Your annual contribution limit is calculated from last year's taxable income. That information is available from the Canada Revenue Agency, or you can work it out yourself with a worksheet found on its website.

Step 1

Log onto the Canada Revenue Agency's website, and click on form T4040(E). Look under Chapter 2, and click "Calculating your (year) RRSP deduction limit." The third paragraph includes a link to Chart 3. Click that link.

Step 2

Print a copy of Chart 3 to use as a worksheet. This step is optional, but makes the calculations easier.

Step 3

Calculate your unused RRSP contribution space. Locate your RRSP contribution limit from the previous year's tax forms, and write it down. Copy the amount you actually contributed from the previous year's tax return. Subtract the actual contribution from the contribution limit. What's left is the total unused contributions you can carry over from previous years.

Step 4

Fill in every applicable box on the first page of the Chart 3 printout using your current year's tax return. Total those figures to get the earned income for the year. Move on to page 2.

Step 5

Copy the earned income into the first box under Step 3. Multiply it by the percentage shown on the page. For the 2011 taxation year, for example, it was 18 percent. Your contribution limit for the year is the lesser of that number or the year's dollar limit, which was $22,450 for 2011. Make any necessary pension adjustments as directed in steps 4, 5, 6 and 7 of your worksheet.

Step 6

Combine the adjusted total with your current-year deduction limit in step 8. This is your total allowable RRSP deduction for the year.

the nest

×