At this time of year, many staff and faculty are contemplating making a contribution to their personal RRSP. February 29, 2012 is the deadline for making an RRSP contribution that can be deducted for the 2011 taxation year.
The Income Tax Act (Canada) limits the amount individuals can contribute to an RRSP. Every year New RRSP Contribution Room is limited to 18% of your previous year's earned income, subject to a dollar limit (RRSP Limit), and reduced by the value of pension benefit you earned in the previous year under a Registered Pension Plan (RPP) and/or Deferred Profit Sharing Plan (DPSP).
The 2011 RRSP Limit is $22,450.
The Pension Adjustment (PA) that is reported on box 52 of your T4 each year is the value of the pension benefit that accrued to you that year under the UW Pension Plan. If you transferred pension benefits into the UW Pension Plan from a previous employer's RPP, you might also have a Past Service Pension Adjustment that would also reduce your New RRSP Contribution Room in the year of the transfer.
Each year, if you do not make the maximum contribution to an RRSP that you are allowed, the unused portion of that year's New RRSP Contribution Room is carried forward to future years. The federal government provides a written record of your cumulative or Total RRSP Contribution Room in May or June of each year on your person income tax assessment.
Since the UW Pension Plan is a defined benefit pension plan, your PA is calculated using the following formula as required by the Income Tax Act:
| (Pension Benefit Earned X 9) - $600 |
Each year the Pension Benefit Earned is calculated using the benefit formula under the UW Pension Plan, the Year's Maximum Pensionable Earnings under the Canada Pension Plan, your annual base salary and the credited service you earned under the UW Pension Plan for the year.
Your Total RRPS Contribution Room (up to and including 2011) appeared on your 2010 tax assessment you received in May or June 2011. You can contact the Canada Revenue Agency at 1-800-267-6999 to request this information or visit the following website: http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html.
Employees who earned between $47,200 and $124,722 in 2010 and participating in the UW Pension Plan for the full year of 2010 will be entitled to New RRSP Contribution Room for 2011 of approximately $3,149. The following chart shows the steps taken to approximate the New RRSP Contribution Room for 2011 at various levels of 2010 earned income:
2010 Earned Income |
18% of 2010 Earned Income (max of $22,450) |
2010 Pension Benefit Earned* (max. of $2,949.44) |
Pension Adjustment (value of pension earned in 2010) |
approx. New RRSP Contribution Room for 2011 |
$20,000.00 |
$3,600.00 |
$280.00 |
$1,920 |
$1,680 |
$30,000.00 |
$5,400.00 |
$420.00 |
$3,180 |
$2,220 |
$40,000.00 |
$7,200.00 |
$560.00 |
$4,440 |
$2,760 |
$50,000.00 |
$9,000.00 |
$716.80 |
$5,851 |
$3,149 |
$60,000.00 |
$10,800.00 |
$916.80 |
$7,651 |
$3,149 |
$70,000.00 |
$12,600.00 |
$1,116.80 |
$9,451 |
$3149 |
$80,000.00 |
$14,400.00 |
$1,316.80 |
$11,251 |
$3,149 |
$90,000.00 |
$16,200.00 |
$1,516.80 |
$13,051 |
$3,149 |
$100,000.00 |
$18,000.00 |
$1,716.80 |
$14,851 |
$3,149 |
$110,000.00 |
$19,800.00 |
$1,916.80 |
$16,651 |
$3,149 |
$120,000.00 |
$21,600.00 |
$2,116.80 |
$18,451 |
$3,149 |
$130,000.00 |
$22,450.00 |
$2,316.80 |
$20,251 |
$2,199 |
$138,882.00+ |
$22,450.00 |
$2,494.44 |
$21,850 |
$600 |
+ salary level at which maximum pension benefit is earned for 2010
* according to the government formula for purposes of New RRSP Contribution Room calculation
In order to maximize tax effectiveness, some employees may want to begin making RRSP contributions for the 2012 taxation year. If this is the case, the New RRSP Contribution Room for 2012 is based on your 2011 earnings and 201 Pension Adjustment, which will be reported on your 2011 T4 slip issued in February 2012.
The 2012 RRSP Limit is $22970. Based on this limit, employees who earned between $48,300 and $127,611 in 2011 and participating in the UW Pension Plan for the full year of 2011 will be entitled to New RRSP Contribution Room for 2012 of approximately $3,208. The following chart shows the steps taken to approximate the New RRSP Contribution Room for 2012 at various levels of 2011 earned income:
2011 Earned Income |
18% of 2011 Earned Income (max of $22,970) |
2011 Pension Benefit Earned* (max. of $2,552.22) |
Pension Adjustment (value of pension earned in 2011) |
Approx. New RRSP Contribution Room for 2012 |
$20,000.00 |
$3,600.00 |
$280.00 |
$1,920 |
$1,680 |
$30,000.00 |
$5,400.00 |
$420.00 |
$3,180 |
$2,220 |
$40,000.00 |
$7,200.00 |
$560.00 |
$4,440 |
$2,760 |
$50,000.00 |
$9,000.00 |
$710.20 |
$5,792 |
$3,208 |
$60,000.00 |
$10,800.00 |
$910.20 |
$7,592 |
$3,208 |
$70,000.00 |
$12,600.00 |
$1,110.20 |
$9,391 |
$3,208 |
$80,000.00 |
$14,400.00 |
$1,310.20 |
$11,192 |
$3,208 |
$90,000.00 |
$16,200.00 |
$1,510.20 |
$12,992 |
$3,208 |
$100,000.00 |
$18,000.00 |
$1,710.20 |
$14,792 |
$3,208 |
$110,000.00 |
$19,800.00 |
$1,910.20 |
$16,592 |
$3,208 |
$120,000.00 |
$21,600.00 |
$2,110.20 |
$18,392 |
$3,208 |
$130,000.00 |
$22,970.00 |
$2,310.20 |
$20,192 |
$2,778 |
$140,000.00 |
$22,970.00 |
$2,510.20 |
$21,992 |
$978 |
$142,100.00+ |
$22,970.00 |
$2,552.22 |
$22,370 |
$600 |
+ salary level at which maximum pension benefit is earned for 2011
* according to the government formula for purposes of New RRSP Contribution Room calculation
Q: What is earned income for RRSP purposes?
A: It includes the total of income from employment, income from a non-incorporated business, income from rental of real property, royalties and alimony received LESS the total of losses from a non-incorporated business, losses from rental of real property and alimony paid.
Earned income excludes pension income, retiring allowances, investment income, and income earned while a non-resident of Canada.
Q: Do I have to wait until the government notification before I can make my 2012 RRSP contribution?
A: No. You can make your full RRSP contribution for 2012 at any time in 2012 (the deadline is March 1, 2013). The government will report your 2012 Total RRSP Contribution Room with your 2011 income tax assessment in May or June 2012.
Q: Am I allowed to over-contribute to my RRSP?
A: The taxation system allows a $2,000 lifetime over-contribution without penalty. While you are not allowed a tax deduction on over-contributions (unless they are applied against successive tax years), the interest income is accumulated on a tax-sheltered basis. Therefore, while double taxation may eventually occur, tax deferral on the investment income may compensate for the tax consequences. Employees with over-contributions should obtain independent financial advice.
Q: Can I make a spousal RRSP contribution?
A:
This continues to be possible to the extent of your own Total RRSP Contribution Room. Financial planners always considered this as a good way to split income at retirement. You would receive the tax deduction on your tax return for the amount of the allowable spousal RRSP contribution. Generally speaking, when the funds from the spousal RRSP are withdrawn, they would be taxed at your spouse's tax rate, however there are circumstances when you would be taxed. You should consult your financial advisor regarding tax policy on spousal RRSPs and income splitting for pensioners.
Q: Should I make additional contributions to the UW Plan?
A: Additional voluntary contributions are not permitted, and optional flex contributions can only be made in December 2012 and December 2013 by members who made a flex contribution prior to January 1, 2012. A description of the Flexible Plan is available at, http://www.hr.uwaterloo.ca/benefits/pension/flexplan.html or it can be obtained from Human Resources.
Human Resources
General Services Complex
University of Waterloo
200 University Avenue West
Waterloo, Ontario, Canada N2L 3G1
519 888 4567 ext. 35935
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