# RRSP and DPSP limit



## pld33 (Mar 6, 2016)

Hello All,

I moved to Canada in the last couple of years and started looking into RRSP and DPSP. Where I work, my employer matches up to 4% any RRSP contributions I make into a DPSP. In 2015 for instance, I contributed about $4000 into an RRSP and my employer matched $4000 in a DPSP. Now, here is the question:

I'm about to file my taxes and from my understanding, my RRSP room for next year will be: 18% of my salary minus any contributions that my employer paid as shown in my T4.
So for my salary of $100K I can expect in my Notice of Assessment an RRSP limit of 18000-4000 (PA)=$14000. Is this correct?

Up to here it all makes sense. What I don't get is how to proceed for the current year. If my limit will be $14000 (as shown above), is this figure only for my part of the contribution or does it have to INCLUDE what my employer will also contribute. So theoretically, can I contribute 14000 on my own and have my employer contribute the additional 4k? Or can I only contribute a maximum of $10K (10K RRSP + 4K employer DPSP =$14000)

I've been trying to find an answer but it's not so easy! Thanks


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## Eclectic12 (Oct 20, 2010)

pld33 said:


> ... I'm about to file my taxes and from my understanding, my RRSP room for next year will be: 18% of my salary minus any contributions that my employer paid as shown in my T4.
> 
> So for my salary of $100K I can expect in my Notice of Assessment an RRSP limit of 18000-4000 (PA)=$14000. Is this correct?


Keep in mind the 18% formula is to calculate in the current tax year that will be added to whatever you haven't used up. So where one started the year say 2016 with $12K of RRSP contribution room, one made $4K of RRSP contributions then at the end of the year, one has $8K RRSP contribution room. 

When the 2016 tax return is filed by the April 30th at the latest, one's "earned income" will be known. The 18% x "earned income" minus a bunch of stuff that may or may not apply ... the PA being one item that does apply to you. Note that there is a cap per year, where the 2016 RRSP cap seems to be $25,370.

Say the 2016 new RRSP contribution room is calculated to be $12K then this is added to the $8K so that one's Jan 1st 2017 RRSP contribution limit is $20K. 

One's 2016 tax return might have a lower number as RRSP contributions made before the tax return has been filed will be factored into the NOA number. A lot of people like contributing in Jan/Feb as this gives the flexibility of applying the deduction to the tax return just about to be filed (i.e. just finished tax year) or used for the current calendar year, which is the current tax year.


The full details of what is earned income and what other factors might come into play are available here.
http://www.cra-arc.gc.ca/E/pub/tg/t4040/t4040-e.html#chrt_3




pld33 said:


> ...What I don't get is how to proceed for the current year.


DB pension, DC pension or DPSP ... I believe they affect RRSP contributions the same way. They generate a PA that reduces *next* year's RRSP contribution room earned. There is no reduction of what you already have.

An RRSP, Group RRSP or spousal RRSP contribution, on the other hand, does affect the RRSP contribution room already granted.






pld33 said:


> ... If my limit will be $14000 (as shown above).


Do you have an notice of assessment (NOA) from your 2014 tax return?
It should have a 2015 RRSP deduction limit section. Part A will tell you what you have already earned.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/lmts-eng.html


If this is say $40K, then your $4K RRSP contribution will reduce this to $36K. The DPSP contributions by your employer will mean the T4 shows a PA of $4K. When the 2015 tax return is filed, the $36K will be there, the earned income x 18% - PA will add something to it (if the earned income really is $100K then it will be $14K but I doubt all income on the T4 is earned income).

So then assuming no RRSP in Jan/Feb 2017 would mean the 2017 RRSP deduction limit should be something like $50K (i.e. the $36K that was already there which has not been used + the $14K earned during the 2016 tax year).


Note that I am using a higher RRSP number as you say you have been in Canada a couple of year. I assume you have work for some of those years so likely RRSP contribution room has already been earned. Since you are new to the RRSP and DPSP, I am thinking any RRSP contribution room earned has not been used, to this point.




pld33 said:


> ...So theoretically, can I contribute 14000 on my own and have my employer contribute the additional 4k? Or can I only contribute a maximum of $10K (10K RRSP + 4K employer DPSP =$14000)


You'd have to call CRA (hopefully after tax time when it is less busy. There have been threads suggesting one can use RRSP contribution room in the same year it is earned but with a 1% per month penalty, I would want CRA to confirm before risking it.

As I say ... I believe you likely already have RRSP contribution room from previous years so it may not matter.


As the employer's DPSP contributions ... the only way you see them is on your T4 as a PA and if you run through the calculation from CRA's web site. Most people just look at their "20xx RRSP Deduction Limit Statement" and stay at or under that number.


I believe Part B of the RRSP Deduction Limit is where one has contributed to the RRSP, recorded it on the tax form using schedule 7 but one has not taken the deduction yet. I have to dig up my copy from last year to confirm though.


Cheers


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## pld33 (Mar 6, 2016)

Thanks for the detailed reply. All makes sense however I'm still not clear with regards to my main question.
Given an RRSP contribution room number for 2017 say (as shown on your NOA), does one need to take into account the DPSP contribution his employer will make during 2017 or does he just make sure his own contribution don't exceed the number on NOA? Therefore, are the DPSP contribution on top of the employee RRSP contributions? Or the sum of the two mustn't exceed the contribution room number?
As you say, I'll try to call the CRA at some point. I don't think I will be maxing my contribution anyway, but I'm just curious to how it works.


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## Eclectic12 (Oct 20, 2010)

I seem to have dropped the wording in my editing.


Track your RRSP contributions against the NOA RRSP contribution limit and ignore the DPSP contributions.



If there are $4K of DPSP contributions, the T4 will have $4K in box 52. As CRA calculates next year's RRSP contribution room, the $4K will be subtracted off, adjusting for the employer's contributions.


Employee without a DB/DC pension or DPSP ... 2016 earned RRSP contribution = $100K * 18% - $0 = $18K.
More than the $25K limit? No ... add $18K to whatever the current number is.

Employee with DPSP with $4K employee contributions ... 2016 earned RRSP contribution = $100K * 18% - $4K = $14K.
More than the $25K limit? No ... add $14K to whatever the current number is.


The tax payer's own contributions against the NOA number are what could get one into trouble.

I suspect the rules that the employer has to follow for the DPSP includes something to be sure the earned income will cover the total DPSP contributions.


Cheers


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## Eclectic12 (Oct 20, 2010)

BTW ... it does not help in sorting all this out that the PA as well as the RRSP contribution room being earned are rolled into the final number that shows up on the NOA.

Even the year info is confusing. Consider that the 2016 RRSP deduction limit is based on 2015 income, determined when the 2015 income tax is filed ... roughly around April 2016.

The RRSP contribution earned from the 2016 income is calculated roughly around April 2017 and is added to the final number that becomes the 2017 RRSP Deduction limit.


Just keeping what the year refers to and when it is happening can be confusing! :biggrin:


Cheers


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## pld33 (Mar 6, 2016)

Eclectic12 said:


> Track your RRSP contributions against the NOA RRSP contribution limit and ignore the DPSP contributions.


That's what I thought based on my intuition but I asked an accountant today and was told that it's not the case. He said that the NOA number you get (even after subtracting the 4K DPSP contribution) is the total number that the employer and employee mustn't exceed the following year. It does seem strange to me. It feels the employer contribution are taken into account twice!

Employee with DPSP with $4K employee contributions ... 2016 earned RRSP contribution = $100K * 18% - $4K = $14K.
For the following year: max contributions of employer and employee = $14K. So the combined contribution must be max of $14k. Seems odd to me...


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## Eclectic12 (Oct 20, 2010)

It would be counted twice ... once by your subtraction from the NOA number and a second time by the PA on the T4 form.

Tax tips says ...


> Pension adjustment (PA) from DPSP reduces the amount that the employee can contribute to an RRSP.


http://www.taxtips.ca/pensions/dpsp.htm

Which is the same as a Defined Benefit or Defined Contribution pension where only the PA affects *next* year's RRSP contribution room ... there is no subtraction from the NOA RRSP contribution number. For a DB pension, I can confirm this is the case for the last thirty years.


From what I have read on tax web sites and CRA's web site what the accountant is saying makes no sense.

What would make sense if the accountant thought you were asking about a pooled pension plan (PRPP).


> Similar to RRSPs, the maximum amount that a member or employer can both contribute to a PRPP in a given tax year without tax implications is determined by the member's RRSP deduction limit.


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/prpp-rpac/cntrb-eng.html


A PRPP needs to have both the employer and employee contributions at or below the individual's RRSP contribution limit but it does not have a PA.


An RRSP that both the employer and the employee are contributing to would also need to have the total contributions at/under the individual's contribution limit but would not have a PA.


Cheers


*PS*

Usually the employer provides some sort of explanation of the tax implications ... is there someone you can ask?


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## Eclectic12 (Oct 20, 2010)

The $4K your employer has contributed is well under the max limit for the DPSP for 2015 of $12,685.

CRA says only the employer can contribute so I suspect your $4K is an RRSP while the DPSP is separate.


> A deferred profit sharing plan (DPSP) is an arrangement under which an employer may share profits from their business with all or a designated group of employees to provide pensions. Deductions under the Income Tax Act are provided in respect of employer contributions (*employee contributions are not permitted*) and tax is deferred on income in the DPSP until such time as benefits are received.


http://www.cra-arc.gc.ca/tx/rgstrd/dpspsubp-rpdbrpsc/bt-eng.html


Cheers


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## pld33 (Mar 6, 2016)

Eclectic12 said:


> From what I have read on tax web sites and CRA's web site what the accountant is saying makes no sense.
> 
> What would make sense if the accountant thought you were asking about a pooled pension plan (PRPP).
> A PRPP needs to have both the employer and employee contributions at or below the individual's RRSP contribution limit but it does not have a PA.
> ...


That's what I think. It's so hard to find this information. I don't get why. Isn't a DPSP fairly common?? What do other people do??






Eclectic12 said:


> Usually the employer provides some sort of explanation of the tax implications ... is there someone you can ask?


You'd think! My HR department is useless. I'll have to ask our parent company but it will take time to get an answer. Anyway, you've been really helpful. Thanks!


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## derico (Nov 23, 2013)

The DPSP at the company I work for shows up as a pension adjustment on my T4, and shows up on the NOA adjusting the contribution limit for the following year. We have to match to receive the DPSP money, but as eclectic said, the employee match money is sent into an RRSP. Both the DPSP and RRSP are arranged by the company with a financial services company. 





pld33 said:


> That's what I think. It's so hard to find this information. I don't get why. Isn't a DPSP fairly common?? What do other people do??


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