RRSP and TFSA rules for 2018

One of the perennial New Year’s resolutions made by many individuals is a commitment to keep on a budget, spend less, save more, deal with any outstanding debt and, generally, to better manage their financial affairs. The start of the new calendar year is also the start of a new tax year and with that, a fresh opportunity to contribute to one’s registered retirement savings plan (RRSP) and tax-free savings account (TFSA). What follows is an outline of the contribution limits and deadlines for both types of plans which will apply for the 2018 tax and calendar year.

RRSPs are, top of mind for most taxpayers at this time of year; making an RRSP contribution is the last opportunity most taxpayers will have to make a difference to their tax payable for the 2017 tax year. This year, any RRSP contribution which will be claimed on the 2017 tax return filed later this spring must be made on or before Thursday March 1, 2018.

While the contribution deadline is the same for everyone, the maximum allowable contribution amount is not. For every taxpayer, the calculation of how much can be contributed for 2017 starts with looking up one’s income for the 2016 tax year. The maximum current year contribution for 2017 is 18% of that 2016 income figure, to a specified maximum. So, a taxpayer who earned $50,000 in 2016 has a current year contribution limit for 2017 of $9,000 ($50,000 × 18%).  In any event, current year RRSP contributions for 2017 are subject to an overall limit of $26,010, regardless of how much the taxpayer earned in 2016.

Good intentions notwithstanding, very few Canadian taxpayers make their maximum allowable RRSP contribution each year. However, where the maximum contribution isn’t made in a year, any “shortfall” is carried forward and can be contributed in any future year. Calculating the amount of any carryforward, plus any current year allowable contribution amount can become complex, and fortunately the Canada Revenue Agency (CRA) keeps track of that number for each Canadian taxpayer. That calculation, which shows the total maximum contribution which can be made by the taxpayer for 2017, can be found on page 3 of the Notice of Assessment for the taxpayer’s 2016 return.

When it comes to making a contribution to one’s TFSA, the good news is the timelines and deadlines are much more flexible than those which govern RRSP contributions. A contribution to one’s TFSA can be made at any time of the year, and contributions not made during the current year can be carried forward and made in any subsequent year.

However, determining one’s total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount, for two reasons. First, the maximum TFSA amount has changed several times (increasing and decreasing) since the program was introduced in 2009. Second, and more important, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. Especially where a taxpayer has several TFSA accounts, and/or a history of making contributions, withdrawals, and re-contributions, it can be difficult to determine just where that taxpayer stands with respect to his or her maximum allowable TFSA contribution for 2017.

2018 Limits and Deadlines for RRSP and TFSA

RRSP deduction limit increases

The maximum RRSP contribution limit for the 2017 tax year is $26,010. To make the maximum current year contribution for 2017, it will be necessary to have had earned income for the 2016 taxation year of $144,500. Deadline for 2017 contributions is Thursday March 1,2018

The RRSP contribution limit for the 2018 tax year is $26,230. To make the maximum current year contribution for 2018, it will be necessary to have earned income for the 2017 taxation year of $145,725.

TFSA contribution limit unchanged

The TFSA contribution room limit for 2018 is unchanged at $5,500. The actual amount which can be contributed by an individual includes both the current year limit and any carryover of re-contribution amounts from previous taxation years.

Keeping track of TFSA contribution room can be complicated, especially where taxpayers have made withdrawals from their TFSA plans.

Taxpayers can obtain RRSP and TFSA information online, through the CRA’s My Account service or by calling their Segal advisor.