RRSP Rules and Regulations

All rules governing RRSPs are set out in the Federal Income Tax Act and are administered by Canada Revenue Agency. It's very important to be aware of and understand the details regarding your RRSPs. Here are some of the key aspects you should know.

Annual Contributions

You may make contributions to your RRSP until December 31 of the year in which you reach the age of 71.
The following limits and deadlines apply annually.

Maximum annual RRSP contribution limits

Year Contribution limit
2007 - $19,000
2008 - $20,000
2009 - $21,000
2010 - $22,000
2011 - $22,450

Your allowable RRSP contribution for the current year is the lower of:

  • The maximum annual contribution limit for the taxation year, or
  • 18% of your earned income from the previous year, or
  • The remaining limit after any company sponsored pension plan contributions.

The Notice of Assessment that you receive from Canada Revenue Agency after processing the previous year's tax return will indicate the exact amount you may contribute to your RRSP for the current year.

Earned income includes, among other income sources:

  • salary or wages
  • alimony received
  • rental income
Earned income does not include items such as investment income.

Company Pension Plan or Deferred Profit Sharing Plan

As a member of a company-sponsored registered pension plan or deferred profit sharing plan, the amount that you can contribute to your RRSP must be reduced by the total value of the pension credits you earned for the year.

This amount is referred to as a pension adjustment (PA) and it is reported on the T4 slip (Statement of Remuneration Paid) that you receive from your employer.

Annual Contribution Deadline

To be eligible for an RRSP deduction in a specific taxation year, you can make contributions anytime during the year, or up to 60 days into the following year.

Carry-forwards

If you can't make your maximum contribution one year, you can make up that portion of the contribution in later years by carrying it forward. The amount of your unused contribution limit is shown on your federal Notice of Assessment. You may also choose to delay claiming your current year's RRSP tax deduction. To take the deduction in a later year, you must make sure that your allowable deduction limit has not been reached.

Over Contributing to your Plan

If you make an RRSP contribution beyond your maximum allowable amount for a year it is considered an over-contribution. There is a lifetime allowance of $2,000 for over-contributions. These contributions must be used before any new contributions are applied.

Transfers Between RRSPs

You may open as many RRSPs as you wish. You are free to transfer your RRSPs between financial institutions at any time without being subject to tax. You can also move some or all of your money between eligible investments within your RRSP.

Withholding Taxes

Funds withdrawn from an RRSP will be charged withholding taxes. This amount must be held back by the plan administrator and remitted to the government on your behalf.

Effective January 1, 2005, the following withholding tax rates apply:
RRSP Withdrawal
All Provinces Except Quebec
Quebec
Up to and including $5,000
10%
21%
$5,001 to $15,000
20%
26%
More than $15,000
30%
31%


Your T4 RRSP receipt will show any amount to be included in your taxable income and credit for the withholding tax.


Separation or Divorce

In case of separation or divorce, either you or your spouse can transfer existing RRSPs to the other, without being subject to tax, provided that:
  • You are living apart when property and assets are settled; and
  • You have a written separation agreement or a court order.

Death of a Plan Holder

In the event of death, the proceeds of your RRSP are distributed to your beneficiary. In the event that no beneficiarry has been designanted, the proceeds of your RRSP are distributed to your estate. The beneficiary can be specified in either your RRSP or in your will.
Note: Some plans for Quebec residents require the designation to be made by marriage contract or will.

The proceeds of the RRSP will remain tax-sheltered if one of these situations applies:

  • You have no surviving spouse, but you have children or grandchildren who are minors named as your beneficiaries. They are dependent on your estate for financial support and will have the proceeds transferred to a term annuity registered in their names; or
  • Children or grandchildren, regardless of age, who are financially dependent because of physical or mental infirmity. The RRSP proceeds will be transferred to an RRSP or RRIF registered in their names, or used to purchase an annuity.

Otherwise the balance of the RRSP at the date of death is included as income on the plan holder's final tax return.

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