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RRSP contribution before March go to previous tax year, right? (lemmy.ca)

submitted 4 weeks ago by observantTrapezium@lemmy.ca to c/personalfinancecanada@lemmy.ca

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Could somebody just confirm whether I got it right? Whatever I contributed to my RRSP between Jan 1 and March 4 of 2025, and was declared in the 2024 tax returns, counted towards 2024. If my Notice of Assessment for 2024 says

Your available RRSP contribution room for 2025: $10,000

then it actually means I can contribute that much from March of 2025 until March of 2026 (whatever I contributed in the beginning of 2025 is a done deal).

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[–] mrbn@lemmy.ca 2 points 4 weeks ago* (last edited 4 weeks ago) (1 children)

Ah, I see where the confusion lies.

*** TLDR: RRSP contribution room (limits) are based on the year in which you claim the deduction, not when you made the contribution.

There's an aside here that is related to the calculation for contribution room which I will get to a little later but is not important to question.

For now, ignore the Jan to March bit and we'll assume that all contributions are done during the year in which you declare them, and for simplicity we'll assume you contribute the maximum amount to your RRSP each year and that your limit for 2024 is 8K.

So,

A) on October 7th, 2024, you contributed 8K to your rrsp. You do your taxes and the CRA sends you an assessment and reveals that your 2025 contribution room is 10K.

B) Knowing your contribution room for 2025 (10K), you decide on January 7th 2025 to contribute 10K. You do your taxes and the CRA sends you an assessment....

Now, lets factor in the extra time afforded for late contributions, Jan to March:

In 2024, you only contributed 4K because you are waiting for your year end bonus to contribute towards your maximum (8K). On February 7th 2025, your bonus check comes in and you contribute another 4K to your RRSP (hitting your 8K limit).

While doing your taxes, you declare that for 2024 you've contributed a total of 8K. So in the eyes of the CRA, you've just done A) from the above. You are allowed to tell the CRA that you contributed 8K for 2024 regardless (within reason) of when the contribution actually took place (in Oct 2024, or in Jan 2025).

In April 2025, you get your assessment back and the CRA says that for 2025, your contribution room is 10K. You contribute 10K and when you do your taxes for 2025, the CRA doesn't care about the 8K you claimed for the year 2024 because that's already been processed and has already affected your 2025 contribution room.

This means that you can contribute up to you maximum (10K) as described in your assessment for 2025 like in B).

ASIDE (again, not important for your question, but good to know):

You contribution room is calculated based on a few different things: unused RRSP deduction room (contribution room) + the other things

So using your example it would be: 20K - 8K + "other things" = 2025 contribution room.

(Contribution room 2024 - 8K contribution you made and claimed in 2024 + "other things") = 2025 contribution room.

[–] observantTrapezium@lemmy.ca 1 points 4 weeks ago

Makes sense, thanks for the detailed response!