How to claim an RRSP tax deduction.
Reporting your RRSP contribution as a deductible expense is fairly straightforward. If you’re filing taxes online and have linked your tax return to your My CRA account, your 2021 contributions should show up automatically on line 208 of your tax return. Otherwise, your financial institution will send you contribution receipts for any contributions you make before the March 1 deadline. You can add these numbers manually.
Keep in mind you don’t need the actual contribution receipts to file your taxes — you just need to add up the amount you contributed and report the total. Just keep the receipts handy for future reference if you are ever audited.
Deferring RRSP deductions
You don’t actually have to deduct everything you contributed to your RRSP this year.
Any contributions you don’t deduct this year become “unused contributions”. They carry forward into the following year, when you’ll have the option to deduct them again. You’ll need to report these as unused contributions on your tax return.
Contributed assets will still grow in your RRSP account — you just won’t see any savings from the contributions in the tax year you made them but in future years.
Why defer RRSP deductions? Doing so can sometimes help you maximize your tax savings.
For instance, if you expect your income to increase in the future, and your tax bracket along with it, waiting to deduct RRSP contributions until that time can help you maximize tax savings.
Similarly, if your tax bracket is lower now than it will be in retirement, you might hold off on making contributions and instead invest through a TFSA.
Who can contribute to an RRSP?
You can contribute to an RRSP if you:
Have earned income
Have a social insurance number
Filed a tax return
Have RRSP contribution room available
Are under 71. The end of the year that you turn 71 is your last opportunity to contribute.
Figuring out how much to contribute to your RRSP is important. Do it right, and you maximize your tax savings now, while setting yourself up for a good income after retirement. Do it wrong, and you could find yourself paying more taxes than you have to.
Author: The Link Between