Personal Finance Canada

1707 readers

1 users here now

Come and discuss anything related to personal finance, directly or indirectly, with other Canadians!

founded 2 years ago

MODERATORS

affairesdepiasses@lemmy.ca

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

6 comments fedilink hide all child comments

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).

top 6 comments

sorted by: hot top controversial new old

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

then it actually means I can contribute that much from March of 2025 until March of 2026

Not quite, it means your can contribute that much from Jan 1 2025 to March 2026. Anything you've declared on your 2024 taxes cannot be claimed on your 2025 taxes.

If in January you contribute 20k to your RRSP, you can claim 10k (assuming it's less or equal to your 2024 limit) on your 2024 taxes and claim the remaining 10k (your 10k contribution room for this year) on your 2025 taxes.

In other words, you don't have to wait until after March to contribute to your RRSP for the current year.

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

That's helpful - I've always just waited but that totally makes sense.

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

Thanks, but I'm still confused.

Let's say my Notice of Assessment for 2023 said my 2024 contribution room is $20,000, then in 2024 (Jan.-Dec.) I contributed nothing.

Then between Jan and March of 2025 I contributed $8,000, and that was included in my 2024 tax returns.

Then my Notice of Assessment for 2024 said my 2025 contribution room is $10,000.

You said "it means your can contribute that much from Jan 1 2025 to March 2026" (referring to $10k), so it means that [now] I can only contribute $2,000 more on top of the $8,000 I contributed before March 2025, despite the fact that those first $8k supposedly belonged to the 2024 tax year where my contribution room was $20k?

[–] 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!

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

That's my understanding as well. Whatever the contribution deadline is. I check every year in case it's been moved.