As tax season approaches, a revision of RRSP rules, regulations and deadlines is always welcomed. Most rules and regulations remain unchanged in regards to RRSPs, with the exception of the contribution limit. The maximum contribution limit for 2016 will be $25,690 and must be paid by the March 1, 2017, 60 days post year end. For a tax payer to be able to contribute the entire $25,690, total earnings made in the prior year must be $142,225.The limit associated to each individual tax payer will be detailed on the previous year’s tax assessment provide by the CRA, upon completion of the 2015 tax filing.
The contribution limit will be based on the previous year’s taxable earnings.
An RRSP is a registered retirement savings plan that allow Canadians to receive tax benefits for participating in the plan. An RRSP can be set up at most banks, credit unions, trust or insurance companies. Annual payments made to an RRSP decrease an individual’s taxable income and offer tax savings in two ways: lower current tax expense due to reduced income and reduced future tax expense when savings are withdrawn, presumably during retirement when income is lower.
RRSP’s rules and regulations are typically straight forward and the standard regulations apply for the 2016 tax year. Each individual tax payer will be able to determine their maximum contribution limit by reviewing their 2015 tax assessment document, provided upon completion of the 2015 tax filings by the CRA. A carry forward amount may be given to those who did not meet the contribution limit for 2015. If a tax payer did not file their 2015 income taxes, the contribution limit will remain at $0.
In order to receive a contribution limit higher than zero, the 2015 tax filings must be completed. Upon completion, the contribution amount will be adjusted and the tax payer can continue with the 2016 tax filings.
In order to receive the tax benefit for RRSP contribution and complete 2016 tax filing, a receipt of contribution is required for back up support.
This receipt must be provided by the RRSP issuer. The receipt should be distributed to the RRSP owner, noting all contributions made for that tax period.The receipt should visibly state the total monies funded relating to the current tax filing. For Electronic tax filing, the contribution receipt should be kept on hand for back up or in case of audit, but does not need to be submitted to the CRA. For a paper filing, the receipt must be submitted to the CRA.
RRSP’s come with age restrictions . A Canadian must be up to 71 years in order to be eligible for the RRSP contribution limit. Once the tax payer turns 72, they are no longer allowed to use RRSPs to reduce current taxable income.
An RRSP is a long term investing plan that empowers Canadians to save for retirement while receiving the benefit of deferred tax payments. The plan also allows Canadian to reduce their total tax payment, when taxes come due. The regulations are generally standard from year to year and this ensures that tax payers are in compliance and able to maximize the benefit offered from the plan.