RRSP CONTRIBUTIONS

Effect of an RRSP contribution on tax:

RRSP contributions are deducted in calculating net income, which in turn reduces taxable income. For clients of the tax clinic the federal tax rate is 14.5%. Therefore federal tax can be reduced by 14.5% of the contribution. Ontario tax can also be reduced.

For example, if taxable income is $50,000 then federal tax is $7,250. If taxable income is reduced to $40,000 by a $10,000 RRSP contribution the tax is $5,800. This is a savings of $1,450 which is 14.5% of the contribution.

In practical terms, an RRSP contribution reduces federal tax by 14.5 cents on the dollar, but only if tax is otherwise payable.

Effect of an RRSP contribution on benefits and credits:

Many benefits and credits (both refundable and non-refundable) are income-tested and reduced once net income exceeds certain thresholds. For example for the 2025 tax year:

• GST/HST Credit → reduced by 5% of family net income over $46,434
• Ontario Energy and Property Tax Credit → reduced for higher-income families
• Canada Child Benefit → reduced when family net income exceeds $38,237
• Medical Expenses Credit → only expenses above 3% of net income are claimable

Because an RRSP contribution lowers net income, it can increase eligibility for certain benefits and credits.

Contributions made between January and March:

If a contribution is made between January and March in 2026, it must be entered in the 2025 tax return regardless of whether the person wants to claim the deduction for the 2025 tax year or the 2026 tax year.

By default, if the person has sufficient RRSP room, the contribution will be claimed for the 2025 tax year. If the person’s intention is to instead claim the amount for the 2026 tax year, then an extra step needs to be taken in UFile: In the RRSP contributions, limits section, enter ‘0’ into the box labelled RRSP deduction to use.