REGISTERED RETIREMENT SAVINGS PLAN (RRSP)

The Registered Retirement Savings Plan (RRSP), governed by section 146 of the Income Tax Act, is a tax-deferred retirement savings arrangement. Contributions within the individual's deduction limit are deductible from income; investment income earned within the plan is not taxed while it remains in the plan; and amounts withdrawn are included in the income of the annuitant in the year of withdrawal. The RRSP therefore defers tax from the contribution year to the withdrawal year, which is generally advantageous where the marginal tax rate at withdrawal is lower than at contribution.

ELIGIBILITY

• Any individual with earned income in the previous year who files a return accumulates RRSP deduction room.

• Contributions may be made up to December 31 of the year in which the individual turns 71.

• A valid Social Insurance Number is required.

• A contributor beyond age 71 may continue to contribute to a spousal RRSP, provided the spouse or common-law partner is 71 or younger.

RRSP DEDUCTION LIMIT

The RRSP deduction limit for a year is calculated as follows and is reported on the Notice of Assessment for the previous year:

1. 18% of earned income for the previous year, to a maximum dollar limit ($33,810 for 2026).

2. Less the pension adjustment (PA) reported on the T4 for the previous year, representing the value of benefits accrued under a registered pension plan or deferred profit sharing plan.

3. Less any past service pension adjustment (PSPA).

4. Plus any pension adjustment reversal (PAR).

5. Plus unused RRSP deduction room carried forward from previous years.

Earned income includes employment income, net self-employment income, net rental income, taxable support payments received, and certain disability pensions, less union dues, employment expenses, deductible support paid, and rental losses. It excludes investment income, pension income, and Employment Insurance benefits.

CONTRIBUTION DEADLINE AND DEDUCTION TIMING

• Contributions made in the calendar year or within the first 60 days of the following year may be deducted in the earlier year. For the 2026 taxation year the deadline is March 1, 2027.

• Contributions are reported on official receipts and on Schedule 7 of the T1 return.

• A contribution need not be deducted in the year it is made; undeducted contributions may be carried forward and deducted in any future year, which may be advantageous where higher income is expected.

EXCESS CONTRIBUTIONS

• A cumulative over-contribution of up to $2,000 is permitted without penalty for individuals aged 18 or older, although the excess is not deductible until room becomes available.

• Excess contributions above the $2,000 allowance are subject to a tax of 1% per month.

• Form T1-OVP Individual Tax Return for RRSP, PRPP and SPP Excess Contributions must be filed, and the tax paid, within 90 days after the end of the year in which the excess arose.

• Excess amounts may be withdrawn without withholding tax using Form T3012A, subject to CRA approval.

TYPES OF PLANS

• Individual RRSP: the annuitant is the contributor.

• Spousal or common-law partner RRSP: the contributor deducts the contribution, and the spouse or partner is the annuitant. Withdrawals made in the year of contribution or the following two calendar years are attributed to the contributor (the three-year attribution rule).

• Group RRSP: an employer-sponsored plan in which contributions are generally made by payroll deduction, with tax relief applied at source; employer contributions are taxable benefits.

• Self-directed RRSP: permits the annuitant to hold a broad range of qualified investments.

• Locked-in plans (LIRA or locked-in RRSP): are one-way holding tanks for pension money you earned at a former job. You can still self-direct the investments, but you are legally blocked from making regular withdrawals until you reach retirement age.

• Pooled Registered Pension Plan (PRPP): a defined contribution arrangement that shares RRSP deduction room.

WITHDRAWALS

• Withdrawals are included in income and reported on a T4RSP slip.

• The issuer withholds tax at source: 10% on amounts up to $5,000, 20% on amounts over $5,000 up to $15,000, and 30% on amounts over $15,000 (in Quebec, 5%, 10%, and 15% federally, plus Quebec tax). The amount withheld is credited against tax payable on the return.

• Contribution room used is not restored on withdrawal.

• Amounts withdrawn may affect income-tested benefits, including the Old Age Security recovery tax and the Guaranteed Income Supplement.

HOME BUYERS' PLAN (HBP)

• Up to $60,000 may be withdrawn tax-free from RRSPs to purchase or build a qualifying home, for withdrawals made after April 16, 2024.

• The individual must be a first-time home buyer: neither the individual nor the spouse or partner may have occupied a home that either owned in the current year or the preceding four calendar years. Exceptions apply on marriage breakdown and for persons with disabilities.

• A written agreement to buy or build the qualifying home must be in place, and the individual must intend to occupy it as a principal residence within one year of acquisition.

• Contributions must have been in the RRSP for at least 90 days before withdrawal to be deductible.

• Withdrawals are made using Form T1036.

• Repayment is made over a period of up to 15 years, normally beginning in the second year after the year of withdrawal. For withdrawals made from January 1, 2022 to December 31, 2025, the repayment start is deferred to the fifth year. Any annual repayment not made is included in income.

• The HBP may be combined with a withdrawal from a First Home Savings Account for the same property.

LIFELONG LEARNING PLAN (LLP)

• Up to $10,000 per year, and $20,000 in total, may be withdrawn tax-free to finance full-time training or education for the individual or the spouse or partner at a designated educational institution.

• Withdrawals are made using Form RC96.

• Repayment is made over ten years, beginning no later than the fifth year after the first withdrawal; unpaid amounts are included in income.

MATURITY

An RRSP must be terminated by December 31 of the year in which the annuitant turns 71. The options are:

• Transfer to a Registered Retirement Income Fund (RRIF): the most common option. A prescribed minimum amount must be withdrawn annually beginning in the year after the RRIF is established, calculated as a percentage of the fair market value at the start of the year, increasing with age. Minimum withdrawals are not subject to withholding tax.

• Purchase of a registered annuity, providing a guaranteed income stream for life or a fixed term.

• Withdrawal of the full amount in cash, which is fully taxable in the year.

DEATH OF THE ANNUITANT

• The fair market value of the RRSP at death is generally included in the deceased's income on the final return.

• A tax-deferred rollover is available where the proceeds are paid to a surviving spouse or common-law partner, or to a financially dependent child or grandchild (including a rollover to an RDSP for a dependent child with a disability).

ADDITIONAL RULES

• Interest on money borrowed to make RRSP contributions is not deductible.

• A contribution in kind of a security is a deemed disposition at fair market value; capital gains are taxable, while capital losses are denied.

• An RRSP may not be used as security for a loan; doing so results in an income inclusion.

• On marriage breakdown, funds may be transferred directly to the former spouse's RRSP or RRIF on a tax-deferred basis using Form T2220.

• RRSPs are generally exempt from United States withholding tax on U.S.-source dividends under the Canada-U.S. tax treaty.

• Qualified investments are defined by regulation and generally mirror those for a TFSA; non-qualified and prohibited investments attract penalty taxes.