Hello, I am wondering how Registered Retirement Savings Plan (RRSP) contributions can affect my return - will they increase my tax refund amount?
An RRSP is an excellent way to offset your tax burden, or to create a tax refund!
Every year on your Notice of Assessment, the Canada Revenue Agency (CRA) states your available RRSP contribution limit that is cumulative from the age when you first earned income and filed a tax return. This limit indicates the maximum amount that you can contribute to your RRSP, though unfortunately most people can’t afford to maximize it each year.
You can set up an RRSP through your personal bank, or any other financial institution, and make contributions to it throughout the 2015 year and for the first 60 days of 2016. Your contributions are a dollar for dollar deduction from your income for the year, which can effectively bring you into a lower tax bracket.
Taxes on income of $50 000 | Tax Bracket: 15% for first $44 701, 22% for remaining balance:
($44 701 x 15%) + ($5 299 x 22%) = $7 870.93
Taxes on income of $50 000 with $5 000 RRSP contribution:
($44 701 x 15%) + ($299 x 22%) = $6 770.93
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