Even though 2022 has been challenging in terms of spiralling inflation and interest rates, 2023 brings a measure of relief for people trying to save money despite the odds. This has been attained through some changes to tax programmes.
What is RRSP?
RRSP or Registered Retirement Savings Plan is a savings plan registered with the Canadian government to which you contribute to amass savings for retirement.
This is done by contributing either cash or investments into the RRSP account and receiving a personal tax deduction for the amount contributed. With this, the amount of personal tax payable is reduced and the RRSP investor gets a refund on filing tax return.
As long as the investments remain in the registered account, they grow tax-free. However, they are taxed on being withdrawn from the RRSP account.
What has changed now?
Each year, Canadian residents build up RRSP contribution room at a rate of 18% multiplied by their earned income, which includes salary from employment, rental income, revenue from own business or partnership. However, income accrued from investment is not included in this. One of the key updates is the increase in annual maximum RRSP contribution limits for 2023.
So far, the maximum annual increase to the contribution room was fixed at 18% of earned income till maximum of $29,210. This limit has been raised now. While it is still 18% of earned income, the limit has been increased to $30,780. The increase of $1,570 in annual maximum contribution is a boost for people with annual income above $165k.
This allows people to grow their savings despite the circumstances of last year.