Scribble

How do I instruct my company to pay my pension the first year?
According to this I will be taxed on pension contributions in my 1st year in Canada http://www.theglobeandmail.com/globe...article549555/

Is it the same rule for group Rrsp's?

Stu_g2004

you cant contribute to an rrsp in your first year as you have not worked a full tax year.

or so I was told by my employer when I first arrived.

cbrown89

Your RRSP contributions are set in the link below.

As you haven't worked in the previous financial year your tax free contributions are set at zero. However, if your company offers matches your contribution ask them about a non registered account. This is what I will be doing half way through this year when I reach my limit.

http://www.rbcroyalbank.com/products...on-limits.html

JamesM

Yup.

Scribble

Aren't there any choices like giving the money to a spousal account?

Aviator

TFSA is all the options you have, for tax free. Over contribution to an RRSP incurs a penalty. Other than that you can invest in anything you like, but the gains are taxable.

Scribble

My employer pays 3% automatically into a group rrsp (with 0% from me)
Will I be taxed on that also?

smivers

I have been paying into an RRSP since I first landed, without any penalty.

The first year I got no tax relief on my contributions (and company matching) because I had no RRSP allowance, but you are allowed to carry your contributions over to the next tax year provided they are smaller than your contribution limit will be (which I think is 22% of your earnings, up to a certain limit).

In my second tax year I claimed everything I had paid in my first year and also some of the amount I paid in my second year, and carried over the rest of my contributions.

Each year my contribution limit is getting further away from my carry-over amount, so in about 10 years time I might actually be claiming all of my RRSP contributions in the year that I made them... Either way, I am still getting tax relief on my contributions, just not necessarily in the same tax year that I make them...

Aviator

http://www.cra-arc.gc.ca/tx/ndvdls/t.../xcss-eng.html

smivers

"Your notice of assessment or notice of reassessment will indicate that you may have to pay a 1% tax on RRSP excess contributions if your unused RRSP contributions exceed your RRSP deduction limit."

So your first notice of assessment has on it your unused RRSP contributions (i.e. whatever you paid in during the first tax year and first two months of the next), and will then have your RRSP deduction limit which is something like 22% of your income from that year. So as long as you don't put more than 22% of your income into an RRSP, you should be good to roll it over each year.

Or at least, I haven't had any problems, and I've been paying in something like 15% of my income each year since I arrived.

Scribble

Does this mean at the end of the 1st tax year you must pay tax on the contributions but then you get it back in year 2 when you roll all contributions over?

smivers

Yes.

Scribble

And the 1% penalty tax (=12%pa) is only on the amount paid in.
So if I contribute $5000 in year one then I have to pay $600 penalty. Maybe double with employer contributions.
Might be just as easy to put the money aside until year 2

smivers

No, the 1% penalty only comes in if you don't have the contribution room in the following year for contributions you make that year, or that is my experience anyway. I have yet to pay a penalty.

For example, you move to Canada and start work July 1st earning $50k a year. You pay 10% of your income into an RRSP:

Year 1: Contribution $2,500, RRSP deduction limit $0.
Year 1 Notice of Assessment: No RRSP Deductions, Deduction Limit is $5,500, Contributions Carried forward is $2,500.

Year 2: Contribution $5,000, RRSP deduction limit $5,500.
Year 2 Notice of Assessment: $5,500 RRSP Deductions ($2,500 that you carried forward, $3,000 of this year's contributions), New Deduction Limit is $11,000, Contributions Carried Forward is $2,000.

Year 3: Contribution $5,000, RRSP deduction limit $11,000.
Year 3 Notice of Assessment: $7,000 RRSP Deductions ($2,000 that you carried forward, $5,000 of this year's contributions), New Deduction Limit is $11,000, No contribution carried forward.


So after three years, in this case, you have finally claimed the tax credit for all the contributions you have made to date. As long as the carry forward amount is less than the deduction limit on each of your Notice of Assessments, you should not have to pay the 1% fine. That is my understanding of what is written, and is my experience.

The higher percentage of your salary you put in, the longer it will take to catch up, but there shouldn't be any penalties unless you put in a higher amount than your contribution limit will be - so if you were to put in 25% of your salary, your first year contributions would be $6,250, so you'd be paying the fine on the difference between this amount and your deduction limit (so on $750).

Scribble

When does the notice of assessment arrive? Is it the year after?
And if there was a tax when would that apply?
http://www.cra-arc.gc.ca/tx/ndvdls/t.../lmts-eng.html
That article makes it sound like a penalty is paid whenever you go over the limit. So, in year 2 you would get charged but is the tax penalty asked for in one go or do they apply it to your tax code like in the UK and take it every month / pay cheque.