Any money you hold in RRSPs and TFSAs is tax sheltered. RRSP contributions are tax deductible, but TFSA contributions are not.
Making RRSP contributions
You must have “earned income” to contribute to an RRSP. To start building RRSP contribution room, you have to file an income tax return — even if you don't owe any tax. Your notice of assessment will tell you how much money you can put into your RRSP each year.
Claiming your contributions
You can claim a tax deduction for the amount you contribute each year. Here's how it works:
- You can claim up to certain limits each year.
- If you have a pension plan, your RRSP contribution will be reduced by an amount known as a pension adjustment or PA. Your PA is reported on your T4 slip each year.
- If you don’t contribute the full amount you are allowed in any 1 year, you can carry forward any unused contribution room.
- You don’t have to deduct amounts in the year you contributed them. For example, you can wait until you are in a higher tax bracket.
Learn more about contributing to an RRSP.
You have to file a tax return to earn RRSP contribution room. You don't have to file a tax return to earn TFSA contribution room. Learn more about the differences between TFSAs and RRSPs
Making TFSA contributions
Unlike an RRSP, you can't deduct your contribution from the income you report on your tax return. Here's how TFSA contributions work:
- You don’t have to have earned income to contribute to a TFSA.
- You don't have to set up a TFSA or file a tax return to earn contribution room.
- You have to be 18 or older and have a valid Canadian Social Insurance Number.
- For 2015, the TFSA contribution limit is $10,000. However, it will roll back to $5,500 for 2016 and subsequent years and going forward, it will be indexed to inflation and rounded to the nearest $500.
- If you don’t contribute the full amount you are allowed in any one year, you can carry forward any unused contribution room, based on the contribution limits for each year. The contribution limit was $5,000 per year from 2009 to 2012, $5,500 for 2013 and 2014, $10,000 for 2015, and $5,500 for 2016. So the total TFSA contribution limit from 2009 to 2016 is $46,500.
Learn more about contributing to a TFSA.