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.
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.
Print a copy of Chart 3 to use as a worksheet. This step is optional, but makes the calculations easier.
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.
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.
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.
Combine the adjusted total with your current-year deduction limit in step 8. This is your total allowable RRSP deduction for the year.
- If you don't want to do the math yourself, the Canada Revenue Agency has an official calculation of your available RRSP contributions on form T1028, "Your RRSP Information for (taxation year)." You can also find it on your latest notice of assessment. If you want that information without delving into your accounting records, register for the "My Account" service at the CRA's website, and use the "Quick Access" feature.
- Accounting firms, tax preparation services and other third parties might offer similar worksheets on their own websites.
- If there is a difference between the deduction limit you've calculated and the one the CRA has calculated, use its figure. You can apply for an adjustment at a later date if you're right, but you could pay penalties if you're wrong.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.