During 2019, Mrs. White has taxable capital gains of $21,750, net rental income of $5,720, pays spousal support of $15,000, and has net employment income of $80,200. Based on her RPP contributions of $3,000 and the matching contributions made by her employer, her employer reports a 2019 PA of $6,000. At the end of 2019, Mrs. White has Unused RRSP Deduction Room of $11,120. Also at this time, her RRSP contains undeducted contributions of $6,275. During 2020, she makes contributions to her RRSP of $13,000.

Determine Mrs. White's maximum RRSP deduction for 2020. Assuming she deducts her maximum, determine the amount of any Unused RRSP Deduction Room that she will have available at the end of 2020, and indicate the amount of any undeducted contributions remaining at the end of 2020.

 

Mrs. White Maximum RRSP deduction is;

The previously un-deducted contributions = $6,275

And

This year's contribution (that is, the amount not exceeding her contribution limit ($17,885.60)) = $13,000

=$6,275 + $13,000 = $19,275

 

Maximum RRSP deduction = $19,275

 

 

The amount of any Unused RRSP Deduction Room at the end of 2020 will be

Maximum contribution and deduction limit = $17,885.60

Less

Her 2020 total contribution = $13,000

 

Unused RRSP is = $4885.60

 

The amount of any undeducted contributions remaining at the end of 2020.

Will be her maximum RRSP deduction = $19,275

Less

Her Maximum contribution and deduction limit = $17,885.60

 

Undeducted contribution will be = $1,389.40

Step-by-step explanation

The annual contribution limit is calculated based on the individual's earned income for that year, the contribution limit set by the CRA for the current year and the participation in an RPP during the preceding year.

 

(step 1)

Let us start with the easy part (earned income)

 

Earned income for purposes of RRSP contribution limit

Net rental income of $5,720

Employment income of $80,200

Less

Spousal support of $15,000

 

Earned income = $70,920

 

Mrs. White has taxable capital gains of $21,750 should not be included while calculating earned income.

 

(step 2)

From there, we need to determine the contribution limit for Mrs. White if she had not participated in an RPP

 

The maximum RRSP contribution a taxpayer who has not participated in an RPP can make for the year is equal to the lesser of:

 

  - 18% of his/her earned income for the preceding year;

Now we use the earned we calculated at the beginning

18% x $70,920 = $12,765.60

 

 -  The annual limit for the year,(the annual limit tables can be found on CRA website, please check them out, I will provide the link in the references below):

RRSP = $27,230

 

RRSP, the lesser of the two, is = $12,765.60

 

(step 3)

Now, we need to consider the RPP because Mrs. White participated

 

Because in 2019 she was a member of an RPP and the value of benefits accumulated on her behalf amounts to $6,000 (i.e. the PA calculated by the employer for 2019), her deductible contribution for 2020 is limited to $6,765.60 ($12,765.60 - $6,000).

 

Deductible contribution for 2020 is reduced to = $6,765.60

 

(step 4)

Finally, we take into consideration the Unused Deductions

 

Because Mrs. White is sufficient for the maximum $6,765.60 deduction in 2020, she could contribute and deduct up to $17,885.60 in 2020 ($6,765.60 + $11,120 the unused previous RRSP Deduction Room).

 

Her Maximum contribution and deduction limit = $17,885.60