# RRSP deduction limit



## Newguy (Jan 28, 2012)

Hi,
Looking at the tax return from this past year, it states that I have a rrsp deduction limit of around $78k available.
I've recently inherited a sizeable amount of money, and have therefore contributed the full $78k, and invested it into equities within my rrsp.

After punching in the basic numbers into some online tax tools, there is a potentially large tax refund available.

Can you advise of the implications of taking the refund, versus not deducting the contributions this year. Typical income is around $100k/pa, and I'm living in Ontario.

Cheers,


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## stardancer (Apr 26, 2009)

Just because you contributed the full amount doesn't mean you have to use it all. On schedule 7, you report the full amount you contributed and the amount you want to use this year and to carry forward. Chances are you don't need the full 78k to reduce your taxable income and get a refund, so why use the whole thing? (in fact may programs warn you when you don't need to use the whole thing and you can then choose what amount you want)

Play around with the numbers until you find a nice balance between refund and carry forward.


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## Maybe Later (Feb 19, 2011)

I would worry less about your tax refund and more about how much tax you are deferring. It makes little sense to reduce your marginal rate to zero this year and then pay 35 or 40% next year. My advice would be to make that decision on the amount you need to claim to drop into a lower bracket (or two possibly) and carry the rest forward to do the same next year. You don't want to claim a 15 % deduction when the money goes in and pay 39% tax when you withdraw it.


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## OptsyEagle (Nov 29, 2009)

Assuming you will make $100K next year and so on, I would make my deductions based on the changes in the marginal rates. In Ontario some of the rates are approximated here:

http://www.taxtips.ca/taxrates/on.htm

So if I were you I would definitely not deduct it all for 2011. Probably the approximate best scenerio would be to deduct $33,000 in 2011, $30,000 in 2012 and $15,000 in 2013, assuming you will not be making any other future contributions.

Here is my reasoning. The first $33,000 deducted in 2011 will save you:

$100,000K - $83,000 = $17,000 @ 43.4% = $7,400
$83,000 - $78,000 = $6,000 @ 39.4% = $2,364
$78,000 - $75,500 - $2,500 @ 35.4% = $885
The last $7,500 (to equal $33,000) @ 33% = $2,475

For a total tax savings of $13,124 or 39.8% of the RRSP deducted amount.

If you kept on deducting the rest of the $78,000 in 2011, you would only get another $12,000. Sure it would be nice to have that this year, but if you leave it with the government and do what I suggest, you will get that $12,000in 2012 and another $6,500 in 2013, all for the same contribution.

There are a lot of possibilities here, but the most important thing to remember is that in a progressive tax system, like we have in Canada, the tax savings on the 1st dollar deducted will usually be significantly more then on the last dollar deducted, since the 1st dollar deducted is used to reduce your last and most heavily taxed dollar earned. Since you will be making a high income next year and so on, it will pay to push a few deductions into those years.


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## Newguy (Jan 28, 2012)

Many thanks for the input.

I'm certainly looking to maximise the benefits of the contribution made this year, and spreading the deductions over a few years looks like the way to go.

As the risk of hijacking my own thread, what's your thoughts on spousal contributions vs handing over a wedge of cash to my wife for her to contribute towards her own rrsp?

I'm limited as to making any spousal contribution this year as I've maxed out the room, however is there an alternative method? The goal would be to eventually balance out both our retirement incomes, which is a few years away yet 

My wife is currently on mat leave, with a substantially reduced income for the year. The dollar value in her rrsp thus far is well below mine, hence the reason for playing catch-up.

Many thanks again,


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## 0xCC (Jan 5, 2012)

You may want to look into the pension splitting rules. A RRIF might be considered a pension (I am not totally clear on this which is why I am suggesting you look it up) which would make balancing your RRSP unnecessary.


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