The CRA officially began accepting electronically filed tax returns this week, but you may want to slow down and observe an important tax savings opportunity before you rush to file. Contributions to your Registered Retirement Savings Plan (RRSP) for the 2018 tax year ends on March 1, 2019. Besides reducing your tax bill, you could score even bigger returns: increased refundable and non-refundable tax credits.
To contribute, you have to have contribution room, which you can calculate yourself. Earned income includes employment income, net income from a proprietorship or rental property, net research grants, disability amounts received from the Canada Pension Plan and taxable support payments received. Or you can find your contribution room on your 2018 Notice of Assessment.
Keen savers can get a head start on their 2019 RRSP now. Your 2019 maximum contribution amount is 18% of your earned income in 2018 to a dollar maximum of $26,500. Plus, any unused contribution room carried forward from 2018. The $26,500 amount is reached when 2018 earned income hits $147,222.
Your contribution room is also reduced by your Pension Adjustment (PA); which is generated if your employer contributes to a Registered Pension Plan or Deferred Profit Sharing Plan for you. Your contribution room may also be reduced by any Past Service Pension Adjustment (PSPA). If you leave your employment and have a Pension Adjustment Reversal (PAR), your RRSP room will be increased.
As you build RRSP contribution room, any amounts that are unfunded from prior years are carried forward throughout your lifetime for use in the future so long as you are eligible to contribute to your own or your spouse’s RRSP. By the end of the year in which you turn age 71, your RRSP must be converted to a RRIF (Registered Retirement Income Fund) or an annuity, and you can no longer make contributions.
But, unused RRSP room can still be used to your advantage even if you are age ineligible. If you have a younger spouse, you can make Spousal RRSP contributions (a contribution to a plan under which the spouse is the annuitant) and still claim the deduction on your tax return so long as the spouse is age eligible.
Your next step is to see your tax or financial advisors to help you calculate and contribute to your RRSP in the most advantageous manner.