For the taxation year 2022, you must contribute 18% of 2021’s earned income or $29,210 whichever is lower. You can also add in unused contribution room from previous years.
Contributing into RRSP
RRSP is one of Canada’s powerful tools for tax savings and for growing retirement wealth. The amounts that you contribute into RRSP can be claimed as a tax deduction. In addition, any income returns or capital gains that you earn within a RRSP is exempt from tax.
Contribution limit history
The federal government sets up the maximum amount that can be made into an RRSP. They have been 18% of earned income or the following limits whichever is lower:
2013: $24,820
2014: $24,270
2015: $24,930
2016: $25,370
2017: $26,010
2018: $ 26,230
2019: $26,500
2020: $27,230
2021: $27,830
2022: $29,210
How much RRSP should I contribute to avoid paying taxes in Canada?
Contribution limit for 2022 = Contribution room available from previous years + 18% of earned income or $29,210 whichever is lower.
Use case 1:
Your earned salary in 2021 is $100,000 and you have nil unused contribution from previous years. How much can you contribute?
18% of $100,000 is $18,000 which is less than $29,210. Hence, you can contribute up to $18,000.
Use case 2:
Your earned salary in 2021 and 2020 is $120,000 and $100,000 respectively. You have not made any contributions in 2021 and 2022. How much can you contribute?
Contribution room available is = 18% of 2020’s earned income $100,000 which is $18,000. (Please note that $18,000 is lesser than $27,830)
Contribution limit for 2022 = 18% of 2021’s earned income $120,000, which is $21,600 which is less than $29,210.
You can contribute a total of $39,600
Use case 3:
Your earned salary in 2021 is $200,000 and you have nil unused contribution from previous years. How much can you contribute?
18% of $200,000 is $36,000, hence you can contribute up to $29,210 in the year 2022.
Contributing into RRSP and avoiding taxes
The contribution limit of every person differs based on their salary earned and unused contribution room. It is important that you take advice from a tax specialist if you are unsure. If you over contribute more than $2,000 then you must pay 1% tax on the over contributed amount every month the over contributed amount stays in your RRSP account.