Question

For the 2019 taxation year, Ahmed made RRSP contributions of $3,000. This is his first RRSP contribution, and his RRSP deduction limit for 2019 is $120,000. His earned income for 2019 is $145,700. He also had a pension adjustment in 2019 of $7000. The annual deduction limits according to the CRA for 2019 are $26500 and 2020 is $27230.

Compute his 2020 estimated RRSP deduction limit for 2020.

Answer 1

Meaning: "Registered retirement savings plan (RRSP)" The RRSP Contribution limit is the maximum amount a taxpayer is allowed to deposit into an RRSP annually. The contribution limit is unique to you, it takes into account this year deduction limit and any past unused contributions from previous years. Contributions made to an RRSP are tax deductions, which reduce the amount of income tax you'll pay. In addition, while the funds are in the RRSP, investment earnings are tax shelter; you do not have to include them on the income tax until you withdraw the fund.

The RRSP deduction limit for the 2019 tax year is 18% of a taxpayer income for 2019 or $26,500, whichever is less

It means to be says in other words that contribution limit for 2019 is 18% of earned income or 26500 which ever is less.

Computation of estimated RRSP deduction limit for year 2020:

120000 26226 Plus Minus Minus Deduction limit for 2019 18% of eamed income Allowable resp contribution 2019 Pension Deduction limit for 2020 26500 7000 112726

so deduction limit for 2020 is $112726.