Comments on: RRSP Tip: Carry Forward Your RRSP Tax Deduction

By: Leanne

Leanne — Tue, 16 Mar 2010 20:00:44 +0000

My husband and I have not used any of our RRSP room to date. We are currently 24 and plan on making a huge lump sum into our RRSP’s for the 2010 tax year then withdraw for the 1st time home buyers plan. This way my husband’s income will be taxed at the lowest rate and we can also get a large tax return! I’m thinking new furniture for the new house and an emergency savings account. I am just researching how long you can carry forward unused RRSP contribution amounts, haven’t found an answer yet, but I assume it is indefinite?

By: Ed Rempel

Ed Rempel — Tue, 17 Mar 2009 01:31:32 +0000

Hi aooa,

You have not mentioned your income amounts. Carrying forward your RRSP contributions will not save you money, unless it would bring you to a lower tax bracket this year.

Also, the optimum RRSP contribution is not the amount that means you don’t pay tax when you file your return. Many people look at whether they have to pay at tax time, but that is not the important issue.

The optimum RRSP contribution is the amount that will bring you to the bottom of you current tax bracket, but only if you can deduct it at a higher tax bracket in a future year.

By: Ed Rempel

Ed Rempel — Tue, 17 Mar 2009 01:27:27 +0000

Hi Remus,

If you want to prove this to your accountant, look at the bottom of your Notice of Assessment in the RRSP contibution room section. The very bottom number is the amount of RRSP contibutions not deducted and carried forward. If you accountant doubts this works, why does CRA have field to track the amount you carry forward?

By: Ed Rempel

Ed Rempel — Tue, 17 Mar 2009 01:25:14 +0000

Hi FT,

Good post. This is one of the 3 Ds of tax savings – deduct, defer, divide. We use this strategy a lot with our clients – not just with RRSP contributions, but with other deductions or credits. It is useful to know what tax bracket you are in and how far your income is from the next higher or lower tax bracket.

By: Sarah

Sarah — Mon, 16 Mar 2009 21:18:51 +0000

Hi! Great tip. I use this strategy frequently (being self employed). One question..is there a time limit on how many years you can carry this forward? Thanks!

By: Mechanonuke

Mechanonuke — Mon, 09 Mar 2009 01:58:50 +0000

Just a follow up to aooa’s post.
I took a look at the Ontario Health Premiums, specifically the $72,000 to 72,600 bracket premiums ($600/year -> $750/year).

If one had the contribution room and was somewhat above the $72,600 mark, there could be a definite savings.

http://www.rev.gov.on.ca/english/taxes/healthpremium/rates.html

By: aooa

aooa — Sun, 08 Mar 2009 08:29:59 +0000

Started to look at the actual returns more closely… what I’m finding is that by using up more 07 RRSP contribution for both my wife and myself, both our 07 Ontario Health Premium was lowered to the next bracket which is $150 less – so instantly that’s $300 in savings. While in 08, the difference in carry forward didn’t make a difference in our 08 Ontario Health Premium.

So for those looking at doing carrying forward RRSP contribution – take into account the Ontario Health Premiums you’ll end up paying as well!

By: DK

DK — Sun, 08 Mar 2009 03:06:22 +0000

probably using all your RRSP room in 07 when you made less money dropped your net income to the point where you qualified for some refundable tax credits thus maximizing your total return.

By: aooa

aooa — Sat, 07 Mar 2009 16:25:18 +0000

clicked submit to early..

So if I carried over most of our 07 RRSP to 08 thinking that we’ll pay less tax since we made more money in 08 then I would have lost out on over $400 in total 07+08 refund compared to the last scenario of carrying forward only 24%/50% to 08 tax year..

again this still doesn’t make sense but at least we got more refund!

By: aooa

aooa — Sat, 07 Mar 2009 16:17:37 +0000

Just wanted to add the following:

TOTAL $BASE REFUND is the total (07+08) refund if I use up all RRSP contribution in 07 and do not carry forward any amount to 08.

If I carry forward ALL 07 RRSP contribution to 08 Tax year, the total (07+08) refund is approx $300 LESS than TOTAL $BASE REFUND.

If I Carry forward just enough of our 07 RRSP contribution to 08 Tax year so we do not owe any taxes in 07, the total (07+08) refund is EXACTLY the same as if I carry forward all 07 RRSP contribution to 08 Tax which is approx $300 LESS than TOTAL $BASE REFUND.

If I carry forward only about 24% of my wifes and 50% of my 07 RRSP contribution to 08 Tax year, our total (07+08) refund is a little over $100 MORE than TOTAL $BASE REFUND.

aooa

By: aooa

aooa — Sat, 07 Mar 2009 13:16:45 +0000

I swore I posted a comment/question the other day but don’t see it here.. so here it is again..

My wife and I are only doing our 07 and 08 taxes – so looking at our RRSP contributions in 07, I was playing around with this carrying forward RRSP contribution to 08 Tax year.

My thought was that since my wife and I made more money in 08 that if we carry forward most of the 07 RRSP Contribution to 08 (just enough so we don’t owe anything in 07 tax), we would end up paying less tax in total (07 + 08 refund).

But after doing several versions of uFile with different carry forward 07 RRSP amounts, I’m finding that this is NOT necessarily true.

We get MORE total 07+08 refund if we actually use more 07 RRSP contribution in 07 tax year VS. carrying forward majority to 08 Tax year – difference is $409!

This does NOT make sense to me.. I’ve been racking my brain the last couple of days trying to figure out why this is… Can any one offer possible explanation??

By: nobleea

nobleea — Fri, 06 Mar 2009 18:16:25 +0000

Remus;

What you contribute to your rrsp and what you deduct for rrsp contributions on your tax form don’t have to be the same amount.

The part where your accountant might be talking about is that you can only contribute up to your contribution limit. Regardless of whether you deduct it or not.
For example, if you have a contribution limit of 10K, you can contribute 10K (well, 12K with the lifetime overcontribution). You can defer all of this contribution til a future year. Or you can deduct all of it against your taxes this year, or a mixture of both. If you only have 5K of contribution limit, you can’t contribute 10K, claim the 5K to your limit and defer the other 5K to another year.
Just google Defer RRSP Contribution

By: Remus

Remus — Fri, 06 Mar 2009 18:08:03 +0000

That may be the case :) however I would like to get an official link or something. I know MDJ knows his stuff but this is too important to simply follow blindly. Having an official version of it would be great.
Like somewhere on the Canada Revenue site. But I can’t find it.

By: DK

DK — Thu, 05 Mar 2009 20:51:47 +0000

Remus,

You should get a new accountant. Seriously.

By: Remus

Remus — Thu, 05 Mar 2009 20:10:02 +0000

FrugalTrader can you please direct me to an “official” source stating that you can indeed carry forward the tax deduction?
I was at my accountant today and he told me you can not so I would like to present him the official thing.

thanks

By: Sandy

Sandy — Wed, 04 Mar 2009 19:42:42 +0000

Ben:
Thank you! I will try it this evening. I wanted to make sure I’m doing this right as I made a big contribution this past year (my first one ever) and I’m finally making enough money to cross tax brackets – I do want to save some deduction room for next year.

By: Ben

Ben — Fri, 27 Feb 2009 03:05:41 +0000

Sandy:
1. Start first with your total “gross” income from all sources. If your income is reported on a T4, this should be easy to find. Then subtract all of your deductions (RRSP, child care, etc), to calculate your “Net” income.
2. It is your “Net” income that actually gets taxed. This number can easily be found using tax software, or by hand with a little know-how.
3. Then get your hands on a copy of the tax table for AB, showing tax rates and tax brackets.
4. Compare your “Net” income to the tax brackets, and find the next tax bracket lower than your income. The difference between the two is the magic number you want. You can then either make a new RRSP contribution equal to this difference, or apply any carried-over amounts against that difference.

Using a software like Quicktax can quickly show you where you stand. After you enter all your incomes and deductions, it will tell you what your net taxable income is (have to go to Form view). Then do Step #4 above.

I’ve always thought that Quicktax should incorporate a marginal tax bracket planning tool in the software, ie. tell you how much to contribute to RRSP’s to get down to the next “step” in your tax rates. For example, if I were $100 over a tax bracket, it should calculate that putting $100 into RRSP will return me $40, but putting another $100 will only return me $30. Etc, etc. The RRSP optimizing tool included has been absolutely useless to me so far, as it really only skims the surface.

By: Sandy

Sandy — Tue, 24 Feb 2009 19:53:21 +0000

Do you know if there’s any software or formula out there that will tell me exactly how much I should deduct this year in order to just reach the next lower tax bracket? I’ve tried the ufile and H&R – and they both don’t seem to tell me how much I should deduct for the best benefit as mentioned here.

I tried to do it manually myself but I’m getting all confused about which income (line #) I should use, i.e., is it the income before or after the deductions, if after, then after which deductions, taxable/non-taxable?

Thanks for your help in advance. I live in AB.

By: FrugalTrader

FrugalTrader — Mon, 23 Feb 2009 12:50:04 +0000

pwt: Are mentioned in the article, the strategy works best when there is a large spread between marginal tax rates. Otherwise, it’s probably best to stick to the strategy that you mentioned.

By: poor white trash

poor white trash — Mon, 23 Feb 2009 03:23:11 +0000

I didnt really see anyone mention the fact that if you use all your deduction immediatly then you get your return this year. even if it’s a little smaller then if you waited you still have the money in hand, and can invest it or recontribute it right back into rrsp’s. Im not sure but it seems to me you would come out ahead this way rather than leaving all your return money in the governments coffers an extra year or two