# Tax advice for new Canadian resident (RRSP contributions)



## btek (Jan 9, 2012)

I'm a relatively new resident to Canada and am attempting to do my taxes solo this year. I would like some advice on RRSP contributions.

Firstly, I work as a contractor (full-time term employee) and as my employer does not make any RRSP payments, I'm left to do this myself. I have been told that contributions I personally make to my RRSP are tax free, as long as they do not exceed my RRSP deduction limit for 2010... plus an extra $2K. Is this correct?

(On a side note, I also have a registered small business I run on the side though my full time job is the main earner.)


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## Homerhomer (Oct 18, 2010)

The income earned inside RRSP is tax free until you withdraw it, you probably have received notice of assessment from CRA telling you how much you can contribute to RRSP, the amount of the contribution will reduce your taxable income and will decrease your tax liability (or increase refund). There is a $2,000 allowance if you exceed your limit (this allowance is not for every year, it's total for all overcontributions) by no more than this amount you will not be penalized.


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## mind_business (Sep 24, 2011)

Homerhomer is correct. However, in addition to the gains inside the RRSP being tax-free till you withdraw them from the RRSP, the amount you contribute in a year directly reduces your taxable income. If you contribute $5000 into an RRSP during the year, then your taxable income is reduced by $5000.

[edit] didn't read HH's post closely enough. He already addressed the reduction of taxable income.


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## btek (Jan 9, 2012)

Great advice, thanks!

My RRSP deduction limit is around $4500, so I was planning to transfer $6000 to my RRSP. Glad to know my income will be reduced by the entire amount.


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## OhGreatGuru (May 24, 2009)

I'm afraid you misunderstand about the $2K overcontribution. You will not be allowed to deduct this from your 2011 income. It will be carried forward as an unused contribution, which you may deduct in a future year. You just won't have to pay a penalty for the overcontribution, or be forced to withdraw it, so it can grow tax sheltered.

I know there are investment experts out there who recommend deliberately overcontributing by $2K to take advantage of the extra tax-sheltered growth. But I've never been persuaded that it is worth complicating your finances unnecessarily. And the more people who deliberately do this, the sooner CRA will reduce the limit, which was supposed to be for "unintentional" overcontributions.


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