9 November 1994 External T.I. 9426695 - RRSP CONTRIBUTION LIMIT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Individual's RRSP deduction limit.

Position TAKEN:

Provided general information and 1994 RRSP Guide

Reasons FOR POSITION TAKEN:

Routine

				5-942669

XXXXXXXXXX		M. Shea-DesRosiers

November 9, 1994

Dear Sir:

Re: Contribution Limit to a Registered
Retirement Savings Plan ("RRSP")

This is in reply to your letter of october 3, 1994 wherein you enquire as to what conditions must be met for contributions to an RRSP to be deductible.

A tax deduction for contributions to an RRSP is permitted within the limits set out in subsection 146(5) of the Income Tax Act (the "Act"). Assuming a taxpayer is not a member of a registered pension plan in 1993 and 1994 and has no "unused RRSP deduction room" (see reference below), the maximum deduction for the 1994 taxation year for the taxpayer's total contributions in 1994 and in the first 60 days of 1995 is equal to:

the lesser of

1) $13,500, and

2) 18% of his "earned income" for the 1993 taxation year.

It should be noted that the RRSP deduction limit is based on the taxpayer's previous year's "earned income". It follows that a taxpayer who would not have any "earned income" in 1993 would not be entitled to any RRSP deduction in 1994.

"Earned income" is defined in subsection 146(1) of the Act and refers generally to employment and business income earned in a period throughout which an individual was resident in Canada, and employment and business income earned in Canada while the individual was a non-resident. Investment income and pension benefits do not constitute "earned income".

For further information, we refer you to pages 14 to 18 of the enclosed 1994 RRSP and Other Registered Plans for Retirement (the "Guide") on the topic of "Calculating your 1994 RRSP deduction limit" and the description of "Your 1993 unused RRSP deduction room", Form T1023 (RRSP Deduction Limit - Calculating your Earned Income for 19__) and the 1994 RRSP Deduction Limit Chart which are both inserted in the middle of the Guide.

It is to be noted that there is no tax credit as far as RRSP's contributions are concerned. Tax credits apply, for example, to charitable donations.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch