Schedule 7: RRSPs in Canada
Schedule 7 is a form that is attached to your Income Tax Return and it calculates your Registered Retirement Savings Plan (RRSP) deduction. The RRSP deduction lowers your taxable income, which means you pay less taxes than you would if you did not contribute to your RRSP. This includes qualifying income that has been transferred to your RRSP, in addition to unused contributions carried forward from prior years. Also, this form is used if you withdrew from your RRSP for your Home Buyers’ Plan or Lifelong Learning Plan and/or making a repayment to either of the two – as these two deductions require reimbursement after their use.
Schedule 7: RRSP Tax Form
Schedule 7 is used:
- If you are not deducting all of your unused RRSP contributions previously reported and available to deduct, as shown on your latest notice of assessment or reassessment;
- If you will not be deducting all the RRSP contributions you made between March 2nd of the previous tax year and March 1st of the current tax year;
- To report your RRSP contributions; and
- You are designating contributions as a repayment under the Home Buyers’ Plan or the Lifelong Learning Plan.
How Much can I contribute to my RRSP?
The maximum contribution limit set by the Canada Revenue Agency is 18% of your past years income, up to a maximum amount. The amount continues to change, but hover around the $26,000 amount. Additionally, you may contribute an extra $2,000 without penalty, but this extra $2,000 is not deductible from your income.
RRSP or TFSA?
There are many different reasons to invest in an RRSP, or a TFSA. An RRSP lowers your taxable income today, so you pay less tax now. The idea behind an RRSP is that you will invest your money while you are working, and you will slowly withdraw that money later in life, when you are in a lower income tax bracket. A TFSA is a tax free savings account. There are no deductions from your income for putting money into a TFSA, but all the money you earn in a TFSA is tax-free when you withdraw it. There are, of course, rules on what kinds of investments you can hold in TFSAs and RRSPs so be careful before making your investments.
Please read our article found here, and contact us if you have any questions.
What if I have Over-Contributed to my RRSP?
Over-contributing to your RRSP has disastrous consequences, such as large penalties and then interest being charged on top of those penalties. If you think you have over-contributed to your RRSP, read our guide found here and call us with any questions you may have. There is a way to get rid of the penalties and interest but you must act fast.
For more information on RRSPs, how they operate, and the tax implications surrounding them, contact us and we would be happy to help! Ensuring that all the necessary forms are accurately completed can prevent any penalties being charged to your name, and preventing your ability to make full use of your RRSP benefits.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.