New to Canada. How do I set up a RRSP?

[behappytoday]

Hello everyone,

Recently I started working in Canada, earning and paying huge taxes. I subscribed to the company DB pension plan and also want to set up a RRSP for me. No spouse/kids.

I understand that my company pension plan will affect my ability to make tax-deductable contrubitions to RRSP. My RRSP limit will be reduced by the value of pension benefits that I earn from mt employer. Both mine and their contributions are part of my pension adjustments. The Revenue Canada will determine the value of my pension through calculations of the pension adjustments.

Given all these condition, can someone guide me on how do I establish my RRSP beside the existing plan at work? Do I just go to a bank, open and register one? Then I get the Form T1213(11) that is a request of tax deductions at source, and file it as well? Do I correctly see the process?

So far I read this website and link. Does CRA answer any questions asked by taxpayers concerning this by email?

http://www.cra-arc.gc.ca/E/pub/tg/t4040/t4040-e.html#P1119_30706

Also, on the Form I see that if I apply to lessen tax from my salary because of my RRSP contributions, I have to attach a Payment Arrangement Contract. What is that?

Thank you so much!

[the-royal-mail]

I'm sure you'll receive many responses to this, but basically the RRSP is something you would setup yourself. You also need to be very careful with pension contributions that you don't exceed your allowable amount for the year. The CRA website is usually quite behind as they don't know how much room you have until your tax return is filed and available in the database. Either way, your RRSP and the amounts contributed to this are things you have to manage and monitor. No one will do it for you. Except CRA when they feel you owe them something.

[andrewf]

I might be mistaken, but can't you not use your contribution room until the next year?

I'm not sure if CRA respond to email, but I do know that their customer service line is very knowledgeable, helpful and responsive.

[MoneyGal]

1. CRA does not e-mail. See this link: http://www.cra-arc.gc.ca/nwsrm/myths/menu-eng.html#m8

2. You likely won't have any room until next year. See "deductions" in this publication: http://www.cra-arc.gc.ca/E/pub/tg/t4055/t4055-e.html#P179_12984

3. A PAC is a pre-authorized contribution amount. If you want the tax deduction amount to be reduced at source, you must have a "contract" - a PAC - in place with a financial institution to make regular, pre-authorized contributions to your RRSP.

Wait until next year to set up an RRSP. Once you have your contribution amount limit, you can put in a lump sum to start the RRSP, or establish a PAC to fund the RRSP through the year.

[behappytoday]

You also need to be very careful with pension contributions that you don't exceed your allowable amount for the year.

What happens if I somehow miscalculate and exceed my allowable amount for, say, $100 or so?

So basically it looks like I cannot open a RRSP and contribute until 2012.

At the same time, CRA says, "Generally, you cannot deduct contributions you made to a registered retirement savings plan (RRSP) in 2010 if this is the first year that you will be filing a tax return in Canada". So they say it is about a tax return filings? I filed my first tax return for the last year in which I landed, and also became a Canadian tax resident. Does this make any impact on how early I can know my limit and start contributing?

What would be the soonest time when I can know it and start?

[Spudd]

If you filed taxes already, you should have received back your "notice of assessment" from CRA in the mail. This document provides you with your RRSP contribution limit.

The pension adjustment due to your DB pension will affect the next year's RRSP room, not the current year's. So, if you have your notice of assessment, you should be all set. If you don't have it, you can look up the information on CRA's website using the "My Account" feature.

[MoneyGal]

I don't have enough information to answer your questions about when you can start to contribute.

It sounds as though you have already filed one Canadian tax return. If you have available RRSP contribution room, that amount will be identified on your Notice of Assessment - a blue, mailed notice from CRA which tells you whether your return has been accepted as filed, or what adjustments were made.

If you have already filed one tax return, and you had income which gave rise to RRSP contribution room, and you don't have your Notice of Assessment (or even if you do), you can call CRA and ask them directly.

You can make an overcontribution to your RRSP of up to $2000 without penalty.

With all respect due to The Royal Mail, the amount of RRSP contribution room you have available is identified by CRA, and you have a $2000 overcontribution "window" to work in.

I don't think you need to be careful in any given year not to overcontribute - I think you need to stay within the limits identified in advance by CRA. As in, you don't need to manage this yourself - instead, you need to heed the limits imposed by CRA. RRSP contribution never arises "in advance" - it is always based on the previous year's earned income.

[behappytoday]

I filed a Canadian tax declaration, but I only showed my income before coming to Canada, which was rather low. No earnings in Canada in 2010.

And I really don't remember any blue notices from CRA. I only received a few brown ones that showed some tax benefits to me. To my best understanding, no Notice of Assessments as nothing was to be assessed in 2010. But perhaps I can make CRA a phone call and ask, thank you MoneyGal!

This page also makes it rather illustrative: http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/vrtltr/rrsp-eng.html It shows calculation of the deduction limit, unused amounts, etc.

Indeed, they first need to have my earned amount for 2011 first! Also I will have to make an online account with CRA, it seems to be the best that I can do.

[HaroldCrump]

That is probably your declaration of world income and is used for some social benefits like CCTB and RESP grant eligibility.
I don't think it creates RRSP room.

[MoneyGal]

OK. The short answer is that if you have no earned income in Canada (yet), you will have no RRSP room available.

It sounds as though you will have earned income in Canada in 2011. In that case, once you have filed your 2011 income tax return, CRA will identify your available RRSP contribution room.

Once you have that number, you can open an account and begin contributing.

(I wish everyone was as eager to contribute to RRSPs as you are - as a country, we only use about 5% of our available RRSP contribution room...)

[behappytoday]

Thank you!

But as soon as CRA identified this amount for me, I walk to any bank or financial institution and tell that I want to open a RRSP with them? is that right?

[MoneyGal]

But as soon as CRA identified this amount for me, I walk to any bank or financial institution and tell that I want to open a RRSP with them? is that right?

Yep. :)

[Eclectic12]

[ ... ]

With all respect due to The Royal Mail, the amount of RRSP contribution room you have available is identified by CRA, and you have a $2000 overcontribution "window" to work in.

I don't think you need to be careful in any given year not to overcontribute - I think you need to stay within the limits identified in advance by CRA. As in, you don't need to manage this yourself - instead, you need to heed the limits imposed by CRA. RRSP contribution never arises "in advance" - it is always based on the previous year's earned income.

Hmmm ... I'm curious as to what you mean by "you don't need to manage this yourself".

If one accepts what is on the Notice of Assessment for RRSP contribution room as-is, without double-checking - it may or may not be correct. CRA makes mistakes, like everyone else.

In my case, the CRA letter asking for RRSP over-contribution penalties in the thousands made it clear an error had occurred. Without a year by year breakdown, it would have taken me a lot longer to figure out what happened.


Cheers

[Brian Weatherdon CFP]

Welcome to Canada !!!

Also..... You'll learn of the TFSA as well. As you're single, no kids, and have a valuable DB pension, I'm not sure how high you want your taxes to be in retirement. (!!)

So the TFSA can be right up your alley, letting you invest an amount that remains tax-free on growth and on ultimate withrdrawals.

A colleague of mine in the U.S. who writes for advisors worldwide considers TFSAs an absolute gem and not to be missed. "Only in Canada, eh?"" Yet Canadians are still discovering it :)

[Eclectic12]

Welcome to Canada !!!

Also..... You'll learn of the TFSA as well. As you're single, no kids, and have a valuable DB pension, I'm not sure how high you want your taxes to be in retirement. (!!)

So the TFSA can be right up your alley, letting you invest an amount that remains tax-free on growth and on ultimate withrdrawals.

A colleague of mine in the U.S. who writes for advisors worldwide considers TFSAs an absolute gem and not to be missed. "Only in Canada, eh?"" Yet Canadians are still discovering it :)

Good point Brian ... correct me if I'm wrong but the TFSA can be started immediately where the RRSP room is available the year after the first Canadian income is earned.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html


If the OP does open a TFSA, there have been two areas of confusion.

The first is that the TFSA is an investment account. Most have opened a savings type account but a brokerage TFSA that allows eligible investments provides a greater range of choices.

The second is the rules around withdrawals. Withdrawals can be put back *the following year*. This means the contribution room is never lost. So if you withdraw in Jan 2010, any further contributions in 2010 have to be from existing room. The withdrawal can be put back in Jan 2011 at the earliest.



Here is a link to help out:
http://www.tfsa.gc.ca/thingstoknow-eng.html


Cheers

[behappytoday]

I really look forward to open a TSFA asap, for 2011 and 2010 where I already was a tax resident. And yes, this is something that is going to take much of my attention and care in the nearest time. Now I do diligent reading on this subject wherever I can. But it is a matter apart of this thread which is for RRSP.

Thanks very much for your welcome :)

[the-royal-mail]

It sounds like you're looking for a quick fix here. Be careful. While a TFSA for you is certainly straightforward enough ($5K per year, don't overcontribute and withdrawals can only be replaced the following year) the RRSP requires a little more time. Since you do not yet have a notice of assessement, you will need to wait until one arrives. A web account won't be very helpful for you since it is only updated after you've received your notice of assess. anyway. That usually happens in March based on the previous year's tax return. So you've got another 6 months of waiting before you know for sure what amount you will be able to contribute. You can setup the RRSP now if you're in a hurry to do something, but won't be able to contribute until that notice arrives following processing of your 2011 tax return. As I said, that normally happens around March.

[behappytoday]

Thanks for all the replies! Sure I can wait another 6 months, no hurry here.
Just wanted to know when I would be able to do it at the earliest, that's it.