Wednesday, April 23, 2014

Filling out Tax Forms Properly for RRSP Contributions

Those who make an early start at contributing to their RRSPs for the year are sometimes confused about how to file their income taxes properly. It’s important to fill out Schedule 7 in the correct year.

Although TFSAs have blunted the traditional RRSP rush each year near the end of February, many Canadians still wait until the last minute to make their contributions. These last-minute contributors know that they can make an RRSP contribution in the first 60 days of this year and still take a deduction on last year’s income taxes.

However, some early birds have already used up their 2013 RRSP room and got ahead of the game by making a 2014 RRSP contribution during the first 60 days of 2014. Some of these people mistakenly think they should wait until they file their 2014 income taxes to declare this contribution. That’s not how it’s supposed to be done.

Even if you don’t intend to take a deduction for an RRSP contribution you made in the first 60 days of this year until you file your 2014 income taxes, you still declare the contribution on your 2013 income taxes. See Schedule 7. You then have the option of deferring taking the RRSP deduction until a later year (2014 or later).

If you fail to declare the RRSP contribution you made in the first 60 days of 2014 on your 2013 income tax return, you can’t just wait for 2014 and put it there. You have to amend your 2013 income tax return. This is one case where doing the right thing and getting ahead of the game can lead to some confusion.

2 comments:

  1. Yeah, I got caught up in that thinking I could just declare it in that years declaration the following year
    Do it right and save the hassle of ammendments. A little fore thought can save a lot of hassle (paperwork)

    ReplyDelete
    Replies
    1. @Anonymous: Agreed. I almost got caught by this the first time I made an early RRSP contribution.

      Delete