If you have a Blendable Group RRSP you may wonder, “How do contributions affect my taxes?” Whether you’re reading this April 29th as the tax deadline looms, or May 1st to get a head-start on next year, here are some answers to common Group RRSP questions.
As with all things financial or payroll related, your situation may be unique. Talk to your employer about any company benefits or payroll questions and consult an accountant about personal financial or tax questions.
How Group RRSP contributions impact your RRSP contribution limit
Your RRSP contribution limit is 18% of your annual income. The contribution limit accumulates starting when you’re 18, so if you haven’t been maximizing your contributions, you could have lots of room available.
All RRSP contributions count against this contribution limit. Whether they’re personal contributions or made through payroll deductions or employer contributed as part of a Group RRSP, they reduce your contribution room the same way.
This means, the contributions to your Blendable Group RRSP will reduce your contribution limit.
Group RRSP contributions and your taxable income
One of the big benefits of an RRSP is that contributions made with after-tax dollars reduce your taxable income. This means that if you take money out of your bank account and contribute it to an RRSP it lowers your taxable income, and you’ll pay less at tax time (or maybe get a refund!). Here’s an example:
- You earn $50,000
- You withdraw $1,000 from your bank account and contribute it to your RRSP
- This $1,000 was taxed when you earned it
- Your RRSP contribution will reduce your taxable income reported to the CRA
- So, when filing your taxes, your taxable income becomes $49,000
- You will get a reduction in tax payable because of the RRSP contribution
However, Group RRSP contributions are a little different and usually do not reduce your taxable income. Typically, Group RRSP contributions are not taxed when your employer contributes them to your Group RRSP. Let’s look at a similar example, but with a Group RRSP:
- You earn $50,000
- Your employer contributes $1,000 to your Group RRSP
- This $1,000 wasn’t taxed like your out-of-pocket contribution
- So, when filing your taxes, your taxable income remains $50,000
- There is no reduction in tax payable because of the RRSP contribution
What about contributions I make that my employer matches?
How employee contributions are handled depends on how the employer accounts for them on your pay and T4s. Some payroll systems will account for employee contributions as pre-tax income, so like employer contributions they won’t reduce your taxable income.
Talk to your employer about your specific situation.
Questions?
We wish we had all the answers, but these are just general guidelines.
Every situation and business is unique. When it comes to pay and taxes it’s important to consult both your employer and your own accountant to make sure you get it right.