RRSP deduction limit shows $0 in 2024 and previous tax years

Tax Topics
1

Hi,

The RRSP deduction limit for 2024 shows $0 and also previous years on CRA account, and there is a total RRSP contribution available to deduct of $40,111.49. I do not know why the deduction limits shows zero. I want to make a claim of $13,000 on the 2024 tax return. Please, is this possible? Someone should help clarify this for me. Why is it showing $0 in this tax year and previous tax years?

2

I am assuming you are a tax practitioner and this situation is on your client’s tax return.
I would suggest taking a look at Box 52 (Pension adjustment) on your client’s T4 slips from his/her employers. The amount in this box is taken into account when calculating the RRSP contribution limit. My guess is that the amount in T4 Box 52 is greater than the calculated RRSP contribution limit. When this happens, the contribution room is $0.00.

Here’s an example from one of my clients who has high income and a high Pension Adjustment every tax year. This client’s RRSP contribution room has been at $0.00 for years because his pension adjustments are always more than the calculated maximum contribution limit allowed. This snapshot is taken from the RRSP tab in TaxCycle.

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In your client’s situation where the RRSP contribution limit is $0.00, this client should not have been permitted to contribute more than $2,000 into their RRSP plan. $2,000 is the maximum amount allowed for an over-contribution without facing penalties. CRA charges a 1% monthly penalty on the over-contribution above this $2,000 limit. And while this $2,000 contribution is allowed, it is not tax deductible if the contribution limit is $0.00, so will have to be carried forward. If your client’s tax situation doesn’t change where the contribution room remains at $0.00 year after year, this carryforward may continue until age 72. I’ve seen this happen, meaning there was no benefit in making that contribution.

Your client will need to withdraw this excess contribution using form T3012A. This should be done soon to avoid excessive penalties. As well, Form T1-OVP may need to be completed and submitted to CRA calculating any penalties payable to CRA on the over-contribution.

Hope this explanation helps.

3

Contribution limit and deduction limit are 2 different part of RRSP

4

You could have earned contribution room from prior years, that’s the contribution limit, but your contribution is limited by your deduction limit which can be $0 if your client doesn’t have any earned income in the prior tax year. I see it happen alot for clients with high passive income, with high accumulated RRSP contribution room, but they have no active income to generate deduction limit, so that means they can buy, but can not deduct. They can carry forward the undeducted RRSP and deduct when they have earned income in the future.

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5

I value this protaxcommunity forum. It helps me to deepen and broaden my understanding of rules, applications, and strategies.

I had not thought about the RRSP limits to deduction with respect to earned income in many years. Thanks for the reminder.

How is your RRSP deduction limit determined

The Canada Revenue Agency generally calculates your RRSP deduction limit as follows:

  • your unused RRSP deduction room at the end of the preceding year

Plus

  • The lesser of the two following items:
    • 18% of your earned income in the previous year
    • the annual RRSP limit (for 2024, the annual limit is $31,560)
  • That exceeds one of the following items:

Plus

Minus

If you want to calculate your RRSP deduction limit yourself, refer to chart 3 of Guide T4040, RRSPs and Other Registered Plans for Retirement.

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