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RRSP Confustion - Advise please

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  • Feb 15th, 2006 5:36 am
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Jr. Member
Aug 17, 2005
152 posts
Waterloo

RRSP Confustion - Advise please

Helo Guys ,

here is the confusion
in 2004 tax returns I got 5800 limit for rrsp contribution ...

so I thought I can contribute to rrsp 5800 + 18% my sal in 2005

but one of my friend told me that we should only contribute the limit mentioned in the 2004 tax returns i.e. I should only contribute 5800 is that correct?

with my old thoughts I contributed 5800 in 2005 and 5000 in 2006 Jan ..
Will there be any problem in this ?
whatever we contribute in Jan/feb/mar should go in 2005 rrsp or we can keep that for 2006 ?

Thanks in advance for your advise.

Thanks
15 replies
Deal Addict
User avatar
Jul 10, 2005
1372 posts
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It's possible you may be charged a penalty for over-contributing to your RRSP. Generally you are allowed to over-contribute up to 2000 without penalty but you've gone over that. Best to talk to a financial advisor, or contact Canada Revenue.

http://www.cra-arc.gc.ca/tax/individual ... ess-e.html
Sr. Member
May 8, 2005
777 posts
4 upvotes
d-man wrote:It's possible you may be charged a penalty for over-contributing to your RRSP. Generally you are allowed to over-contribute up to 2000 without penalty but you've gone over that. Best to talk to a financial advisor, or contact Canada Revenue.

http://www.cra-arc.gc.ca/tax/individual ... ess-e.html
I don't think that's what he's talking about. RRSP deduction limits are cumulative; they carry forward. So, if you don't make your full contribution every year, you build up RRSP "room".

Every year, the CRA sends out notices of assessment which show your unused contribution room, based on your last tax return. http://www.cra-arc.gc.ca/tax/individual ... its-e.html

In this case, the OP is right. He can contribute the full amount shown on the assessment (previously earned RRSP room) plus 18% of his earnings this year. The complete calculation is available at http://www.cra-arc.gc.ca/E/pub/tg/t4040 ... 1127_32576 .

So, if the OP contributed $5800 in 2005, that uses up his accumulated "room". The further $5000 contribution is fine as long as it is less than 18% of his income for 2005.

Jackie
Deal Addict
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Nov 26, 2003
1286 posts
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I don't mean to hijack, but I have a similar, related question:

I have never contributed to an RRSP and have been filing taxes since 2000. Can I carry forward those deduction limits into this (or other future) tax years? Even though CRA tells me that I have $0 unused RRSP contributions available to deduct for 2005?
Deal Fanatic
Feb 1, 2006
9645 posts
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Muskoka
'In this case, the OP is right. He can contribute the full amount shown on the assessment (previously earned RRSP room) plus 18% of his earnings this year.'

No, that's not right. You can only claim the amount shown on your assessment, plus anything within the $2000 overcontribution limit. The 18% of 2005 earnings will be used to establish your contribution limit for 2006. Your own link shows this, you must have interpreted it incorrectly.
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
camzie wrote:I don't mean to hijack, but I have a similar, related question:

I have never contributed to an RRSP and have been filing taxes since 2000. Can I carry forward those deduction limits into this (or other future) tax years? Even though CRA tells me that I have $0 unused RRSP contributions available to deduct for 2005?
You would only have contribution limits from past years if you had income, so if the CRA says you have no room, then you must have had no qualifying income. Or you're reading it incorrectly.
Jr. Member
Aug 17, 2005
152 posts
Waterloo
:( unfortunately nobody answered for my actual question , I think my question is not clear ..

IF I Open an account in January 2006 and contribute 5000 in that account should I claim that 5000 for my 2005 tax filing or Can I do that for 2006 ?

I know that we can contribute till March 1st for 2005 but is it a must or is it only a facility ?

Thanks
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
sudenm wrote: :( unfortunately nobody answered for my actual question , I think my question is not clear ..

IF I Open an account in January 2006 and contribute 5000 in that account should I claim that 5000 for my 2005 tax filing or Can I do that for 2006 ?

I know that we can contribute till March 1st for 2005 but is it a must or is it only a facility ?

Thanks
You can use that $5k deduction for 2005, or you can carry it forward if you'd like, that's no problem.
Deal Guru
User avatar
Jun 26, 2005
10111 posts
1966 upvotes
Toronto
sudenm wrote: IF I Open an account in January 2006 and contribute 5000 in that account should I claim that 5000 for my 2005 tax filing or Can I do that for 2006 ?
Correct. Contributing money into RRSP account in Jan - March of a year gives you the option of claiming it for last years' tax return or the current year's return.
Sr. Member
May 8, 2005
777 posts
4 upvotes
Bullseye wrote:'In this case, the OP is right. He can contribute the full amount shown on the assessment (previously earned RRSP room) plus 18% of his earnings this year.'

No, that's not right. You can only claim the amount shown on your assessment, plus anything within the $2000 overcontribution limit. The 18% of 2005 earnings will be used to establish your contribution limit for 2006. Your own link shows this, you must have interpreted it incorrectly.
Sorry, I read the OP to be referring to his 2004 limit. In that case, the allowable deduction would be {2004 limit} +18% 2005 eligible earnings (as shown in the convoluted formula included in the second link). If he is referring to a 2005 assessment, then the $5800 is his limit. But he can carry forward the contribution made in the first three months of this year to his next year's tax return so should incur no penalties in any event.

Jackie
Deal Fanatic
Feb 1, 2006
9645 posts
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Muskoka
Jacklad wrote:Sorry, I read the OP to be referring to his 2004 limit. In that case, the allowable deduction would be {2004 limit} +18% 2005 eligible earnings (as shown in the convoluted formula included in the second link). If he is referring to a 2005 assessment, then the $5800 is his limit. But he can carry forward the contribution made in the first three months of this year to his next year's tax return so should incur no penalties in any event.

Jackie
The 2004 limit would be from his 2003 earnings. 2005 earnings will establish the limit for this years (2006) limit.
Deal Fanatic
User avatar
Aug 19, 2001
5171 posts
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Vancouver
You can contribute today and claim the deduction in 2010 if you want.
Jr. Member
Aug 17, 2005
152 posts
Waterloo
grant wrote:You can contribute today and claim the deduction in 2010 if you want.
I think this is not the case as the intrest is also tax defered we cannot contribute 100000 in RRSP today and claim 10k every year ....
Please correct me if I am wrong
Deal Addict
User avatar
Jun 27, 2005
1631 posts
31 upvotes
sudenm wrote: :( unfortunately nobody answered for my actual question , I think my question is not clear ..

IF I Open an account in January 2006 and contribute 5000 in that account should I claim that 5000 for my 2005 tax filing or Can I do that for 2006 ?

I know that we can contribute till March 1st for 2005 but is it a must or is it only a facility ?

Thanks
YOU CAN CLAIM IT FOR EITHER YEAR IF YOUR HAVE THAT MUCH CONTRIBUTION ROOM IN 2005. Unless you have a good reason, e.g. a big jump in income in 2006, it is best to claim that in your 2005 return.

***********************************************

RRSP contribution limits are based on the previous year's income (as is the amount of tax you pay).

You can contribute and claim on your 2005 return the amounts that the CCRA
has calculated and sent you in your lastest Notice of Assessment i.e up to 18% of your 2004 earned income and any carry forwards from previous years.
The money has to be deposited by end of Feb 2006. You may defer
claiming that amount until following years, e.g. if you think your income will take big jump in future.

You can also contribute 18% of your estimated earned income for 2006 anytime from Jan 1 2006 until end of Feb 2007. If you pay in too much, that is OK as long as it less than $2000 higher than the actual amount you are allowed to contribute.

You can also call the CCRA on any matter, anomously if you wish.
Deal Fanatic
User avatar
Aug 19, 2001
5171 posts
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Vancouver
sudenm wrote:I think this is not the case as the intrest is also tax defered we cannot contribute 100000 in RRSP today and claim 10k every year ....
Please correct me if I am wrong
You are wrong. If you have $100,000 on-hand, deposit it today and claim the deduction in any future year's tax return. (as long as you have the allowance from earned income).
Sr. Member
Feb 18, 2004
821 posts
302 upvotes
grant wrote:You are wrong. If you have $100,000 on-hand, deposit it today and claim the deduction in any future year's tax return. (as long as you have the allowance from earned income).
That's right.
You do not need to claim the deduction in the year the contribution to your RRSP was made. Deduction amounts can be accumulated and taken in future year(s), up to the annual allowable limits. This may be advisable in cases where contributions are made when one is in a relatively low tax bracket, and postponed in anticipation of future earnings when one will be at a higher marginal rate and thereby enjoy greater net tax savings from the deductions. One must consider the effects of inflation on the value of the savings if one carries the deduction amounts too far in the future.
http://www.professionalreferrals.ca/article-375.html

The up side is, if you sell an investments in your RSP and incurs capital gain, the profit is tax sheltered. The down side is, if you make a $100,000 contribution to your RSP but later you find out you actually need that money, you'll have to pay witholding tax when you withdraw from RSP.

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