The amount you can deduct is subject to limits, based on last year's earned income and "pension adjustment" amount, and on deduction room carried forward from prior years. Fortunately, it is no longer necessary for you to keep track of or calculate this limit yourself. The CCRA does this for you, and indicates your RRSP deduction limit on your Notice of Assessment for the previous taxation year. If you do not have your notice, you can find out your limit by calling the CCRA¹s T.I.P.S. automated phone service or by contacting your local tax services office.

You have until March 1, 2002, to make a deductible contribution for 2001. Any portion of your deduction limit that you do not utilize is carried forward to the following year, enabling you to deduct larger contributions later on. For example, suppose your deduction limit for 2001 is $4,000, but you can only afford to contribute $1,000. The unused deduction room of $3,000 is carried forward and added to your deduction limit for 2002. Such amounts can be carried forward indefinitely.

You do not have to claim the deduction in the same year in which you make the contribution. If you expect to be in a higher tax bracket next year, you may therefore wish to postpone claiming the deduction so as to take advantage of the increased tax savings.

You also have some flexibility with regard to contributions that you can make but cannot deduct because your contribution limit is too low. Unless you are under 19, you can make up to $2,000 in excess contributions without incurring penalties. However, any over-contribution in excess of this $2,000 cushion is subject to a 1% per month penalty tax.

Home Buyers' Plan

The Home Buyers' Plan allows "first-time home buyers" to withdraw up to $20,000 from their RRSPs for the purchase of a home without paying tax on the withdrawal. The amount must be used to build or purchase a home within specified time limits, and the amount must be repaid over a period of no more than fifteen years. If the minimum annual repayment is not made as scheduled, that amount is included in income for that year. Additional repayments may be made if desired; this will result in a lower outstanding balance and lower scheduled repayments for the remainder of the pay-back period. The repayment does not need to be made to the same RRSP from which the original withdrawal was made. However, it must be made to an RRSP of which you are the annuitant. You cannot make it to a spousal RRSP.

You will meet the definition of a "first-time home buyer" if neither you nor your spouse or common-law partner has owned and lived in a home in the previous four calendar years. However, if you have participated in the plan before, your previous balance must be completely paid off. If you qualify for the disability amount, you do not have to be a first-time home buyer. Subject to the limits discussed above, you may withdraw money from your RRSP to purchase a home that is more accessible or better suited to your care. You also do not have to be a first-time home buyer, if you are purchasing a home suitable for a disabled relative.

If you take advantage of the Home Buyers' Plan, be sure not to withdraw any of the RRSP contributions you made in the immediately preceding 90 days, otherwise you will not be allowed to deduct them on your return. To avoid having your RRSP deduction disallowed, do not make your Home Buyers' withdrawal from the same RRSP to which you contributed in the immediately preceding 90 days or, alternatively, make sure that the balance in that RRSP immediately after the withdrawal is greater than the total contributions made during the preceding 90 days.

Lifelong Learning Plan

If you or your spouse are considering the possibility of continuing your education or are currently enrolled in an education program, you now have an alternate way to finance your studies. The Lifelong Learning Plan allows you to withdraw up to $20,000 tax-free from your RRSPs to assist you or your spouse with education expenses. Subject to certain restrictions, amounts may be withdrawn as often as needed over a period of up to 4 years, and repaid over a period of no more than 10 years. In order to take advantage of the Lifelong Learning Plan, you or your spouse must be enrolled as a full-time student in a qualifying education program. You may also partake in the Lifelong Learning Plan if you are disabled and attend school on a part-time basis.