RRSP limits and "60 day rule"

I've always been confused by some of the conventional wisdom around Registered Retirement Savings Plans (RRSP) in Canada. As a layman with no qualifications, I've written this post to try to explain the timing rules around RRSP contributions, and show some examples where people on the internet are understandably confused by the same thing.

Summary

• Contribution room is based on calendar year
• The reporting of contributions is based on the contribution year of roughly March to March, lagging behind the calendar year by 60 days
• Reporting a contribution is never optional
• Claiming the deduction is optional
• The mismatch between calendar year and contribution year creates edge cases where you have to use contribution room from the current year that isn't confirmed yet, while reporting the contribution on the previous year's taxes

Timing of contributions

The RRSP contribution year, a term used by the CRA, is basically the calendar year delayed by two months, with some adjustment for non-business days. It's approximately March to March, inclusive. Contributions made during the RRSP contribution year count for the tax year (calendar year) of the start of that contribution year.

For example, the 2024 contribution year runs from March 1, 2024 to March 3, 2025, inclusive. Any contributions made during this RRSP contribution year have to be reported on your 2024 tax return.

The contribution year is divided into two periods. The first period is the remainder of the calendar year, from March to December, and the second period is the first 60 days of the next calendar year. This distinction will become important when we cover a special case using of using your deduction limit.

To avoid mistakes around edge cases, plan to make your contributions well in advance of the deadline.

Contribution room and deduction limit

Your RRSP deduction limit is a running balance. Every calendar year, your RRSP deduction limit increases by 18% of earned income from the previous calendar year, up to a cap that increases yearly with inflation. Earned income is a sum of some other values from your tax return and roughly corresponds to employment income minus a few things. In 2024, the cap is $31,560. Unused deduction room carries over indefinitely.

RRSP deduction limit is used up by RRSP deductions on your tax return, with a few adjustments for pensions. Depending on the type of adjustment, it might use up your current year's deduction limit, just like your own deductions, or reduce the amount of added room for next year. I won't cover these because I don't understand them, and I don't have these adjustments myself.

Your contribution limit for a given calendar year is defined as your RRSP deduction limit for the year, minus previous RRSP contributions that were not deducted yet.

In everyday conversation, we usually talk about contribution limits and how much we can contribute in a year. The CRA likes to base everything on deduction limits and derive the contribution limit from the deduction limit. For example, the definition of an RRSP over contribution is defined in terms of your deduction limit¹. In simple cases (without those aforementioned pension adjustments), these are equivalent ways of looking at the same thing, but it can be confusing at first.

In these simple cases, you can think of your contribution room as accumulating every calendar year by 18% of your income, up to a cap. Unused contribution room carries over indefinitely. Your deduction limit is then your contribution limit, plus previous contributions that were not deducted yet. It's the same definition as before, but flipped.

Because RRSP deduction limits are set by calendar year, and the contribution year is offset from that, contributions made during the second contribution period (first 60 days of the next calendar year) might end up using future RRSP contribution room. The contribution year determines when you have to report the contribution, but the calendar year determines whether you are able to claim the deduction (and therefore whether the contribution is within your contribution limit).

Contributing without deducting and "60 day rule"

Every dollar of RRSP contribution has to be reported on your tax return, but not every dollar needs to be used as a deduction. Reporting in the correct year is mandatory, deducting is optional.

We'll skip over the discussion about when it's beneficial to delay claiming the deduction. I only want to focus on the mechanics.

Because it's easy to mix up contribution years, calendar years, contributions, and deductions, there's a lot of room for misconceptions. RRSP contributions must be reported in the calendar year that corresponds to the contribution year. There is no choice on whether or when you report the contribution.

The "60 day rule" can be wrong or confusing, depending on the version of it you hear.

Contributions made in the first 60 days of the year can be reported for that calendar year or the previous calendar year.

This is wrong. Those contributions must be reported for the previous calendar year, because that's the calendar year that corresponds to the contribution year.

Contributions made in the first 60 days of the year can be claimed as a deduction for that calendar year or the previous calendar year.

This is true, but I find it confusing. This also applies to any other contribution made in the same contribution year. A contribution in January of 2024 can be deducted on your 2023 taxes in the same way that a contribution in December 2023 can be deducted on your 2023 taxes, because they're both part of the 2023 contribution year.

Worked example: first ever RRSP contributions

The very first time you gain RRSP contribution room introduces an edge case. Let's say

• you work for the first time in 2022
• you earn $80k of salary
• you really want to maximize your RRSP as soon as possible

Then,

• you generate $80,000 × 18% = $14,400 of RRSP contribution room for 2023
• you contribute $14,400 in January 2023

Your RRSP tax slips that you receive (hopefully in March) will show total contributions of $14,400 for the second contribution period of Jan-Feb. On your tax return, you'll have to include Schedule 7, because you meet the following condition:

You will not be deducting all of the RRSP, PRPP, and SPP contributions you made from March 2, 2022, to March 1, 2023, on your 2022 return

because it's not possible for you to claim the deduction in 2022.

Examples of 60 day rule confusion

Tax Tip: Contributions made in the first 60 days of the year can be used as a contribution for the prior tax year or the upcoming tax year. They will not be included as an overcontribution for the prior year. https://www.taxtips.ca/registered-savings-plans.htm

Reporting the contribution is not optional, but it's true that it will not count as an overcontribution for the prior year.

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Contributions made in the first 60 days of the year can be used towards the previous years’ or current year’s contribution amount. The date usually falls around the end of February or beginning of March of the following year.
https://www.sunlife.ca/en/investments/rrsp/contribution-limit/

It's more accurate to say it can be used as the previous or current year's deduction, to avoid confusion about when to report the contribution.

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If I contribute something (more room left) to my RRSP before March 1, 2022, I understand it can be used for 2021 tax year, but is it a mandatory rule to have it filed for 2021 tax year when contributed in the first 60 days? Or can this be done for 2022 tax year in 2023? https://redd.it/sxfylu

if I [contribute in Feb 2022] doesn’t it count as [contributing] in 2022? Or because I [contributed] before March 1st I can count it towards my 2021 contribution room https://redd.it/sx145d

Both posters are confused about the timing of when to report the contributions. Most of the replies on these posts are correct.

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Assuming that my RRSP room is full for 2024 and that I'll be getting more room in 2025, if I make RRSP contributions in the first 60 days of 2025, can those contributions be used for the 2024 tax year or only the 2025 tax year? https://redd.it/1h97jkz

[Do] contributions in the first 60 days apply towards the previous or present year’s contribution room?

Example:

If I max out my RRSP for 2024 by December 2024, can I make a contribution in the first 60 days that will go into the contribution room for 2025 tax year?

Additionally, I assume I will only be able to claim that tax deduction towards whichever year’s contribution room it fulfils? So if I make a deposit in January and have it use 2025 contribution room, I will only be able to claim it on 2025 taxes and not 2024 taxes ?

Also, can I make a contribution in January 2025 without knowing how much room I have in 2025? Let’s say if I make a deposit that’s small/reasonable, like $3K. https://redd.it/1gpsswk

I am trying to determine if my RRSP Contributions for the first 60 days of 2024 can be used as a deduction for my 2023 tax return. The twist is I maxed my 2023 contribution room in December. I am leaning towards "no" and that I will need to use the 2024 First-60-Day contributions for 2024 income. https://redd.it/19c86lx

These are some more examples of the common confusion around when to report the contributions and what to do when your RRSP room has been maxed out in the calendar year.

Something wrong?

Email me at blog at charliewang dot io.

Notes and sources