Deferring your RRSP Deductions to Higher Income Years

It is important to note the difference between an RRSP “contribution” and an RRSP “deduction”. You “make a contribution” by putting money (or securities) into your RRSP account. You “claim a deduction” when you want that contribution to reduce your earned income on a tax return (to reduce your tax bill and get a refund).

You may already know that you can carry forward contribution room – so if you didn’t maximize your RRSP in any given year, you have the ability to make up for it later. But a lesser known fact is that you can carry forward your RRSP deduction as well.

The RRSP deduction is generated when you make an RRSP contribution, and the norm is to claim it in the same tax year you made the contribution. This is why you get your refund.

If you make an RRSP contribution but don’t use the RRSP deduction, you can carry forward the deduction indefinitely as well. Of course your question now is: Why would I want to do something like that!?

Answer: You expect to be in a much higher tax bracket in the next few years.

Let me explain by using an example. Let’s assume that you make an RRSP contribution of $1,000. If your marginal tax rate is 20% for that tax year, you will generate a $200 refund if you claim the RRSP deduction for that year. But if you know that you will be in a higher marginal tax bracket the following year, say 40%, then you could wait to use the deduction until that time and get a $400 refund. That is essentially a 100% guaranteed rate of return on that money. (Kudos to Ledtim for catching the previously incorrect 50% rate of return stated.)

A word of caution: it doesn’t always make sense to defer the deduction if you are just waiting for a slightly higher marginal tax bracket year OR if the amount of time before claiming the deduction is too great. For example, if the difference between tax brackets is 5% but you won’t be into the higher tax bracket for 5 years, the smaller refund (assuming it is re-invested) doesn’t have to earn much growth for it to make more sense to claim the deduction now and invest the proceeds. Using our $1000 contribution and the 5% difference in tax brackets in 5 years: $1000 contributed might earn $300 (in a 30% tax bracket) now versus $350 in 5 years (35% tax bracket). Your $300 will have to earn $50 in growth over 5 years in order for it to make more sense to claim the deduction now (which can be accomplished if you can earn 3.13%/year after tax).

*Thanks to reader Sam for pointing out my mistaken example earlier.

Please make sure to get an analysis done by a professional for your own situation!

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 28 comments
  • Guest

    hi preet,
    sorry to dispute you…
    in your example if we expect to be in a higher tax bracket in 3 years..we would get $300 refund instead of $200….in otherowrds the $200 should earn an additional $100 in 3 years..which works out to around 33% & not 10%
    you calculated $100 on $1,000 & not $200..which is the cause for error.


  • Preet

    No problem Sam – thanks for posting. You are indeed correct – I have amended the post using a different example to showcase the example correctly. Thanks very much! :)

  • Pam

    If you contribute money to the RRSP in 2005, and withdraw it in 2006, the tax consequence is that your 2005 income is lowered by the contribution, while your 2006 income is increased. This can be a valuable tool for self-employed individuals or contractors, whose income varies significantly from one year to the next. For example, if you earned $150,000 in 2005 but only $50,000 in 2006, you could lower your taxes, and average your income stream, by using an RRSP contribution to defer some 2005 tax until 2006.
    Start Your Own Business to Build Wealth, Reduce Taxes & Protect Your Assets.

  • Preet

    For a more detailed explanation of what Pam has referenced you can read my post on "Using your RRSP to level your income".

  • Iain

    I am a student. I have contributed about $4,000 to my RRSP over the past few years from summer job money. As I haven’t made much money over the years (under 10k) I don’t think I have actually received a deduction for any of it. (If I have it will have been a small fraction) By what has been said above, I am assuming that when I do start working full time in 2008 that this $4,000 can be used to deduct from my 2008 income?

    If so, how does that happen? I use a tax program on my computer, is it likely that this will calculate this for me?


  • Preet

    Hi Iain – you can check your notice of assessment for the 2006 (and prior) tax years to see if you have been claiming the deductions. If you have, you will not be able to use them going forward.

    Your tax program will not necessarily claim the deductions for you. If you entered in data from your RRSP contribution receipts and then told the tax software to claim those contributions for the tax year in question for the program, you will have used them up.

    You need to claim making the contributions when you make them, but you can elect to defer claiming the resultant deductions until it suits you best (which most people don’t realize, and I don’t know how many software packages will ask if you want to defer them as part of any "tax optimizer" macros they offer). If I were a betting man, I would suspect that you have already claimed them without realizing it – I hope I am wrong though!

    Your notices of assessment will let you know. In fact, your 2006 NOA will let you know if you have any unused deductions available – so that should be your first step for checking.


  • Lisa Hallman

    I have contributed $5,000 to an RRSP by taking out a loan last year. I was told it will result in a huge refund.
    My rrsp deduction limit is about 1700 and my total income for the prior year was less then 2 grand. The question is how do I defer it, Quick Tax tell me I can but then doesn’t direct me to how. Will I still have to pay the 1% my refund is showing me $960 with the full amount put in this year.

  • Preet

    With respect to your Quick Tax question, you will have to contact their support staff as I have never used Quick Tax myself. I’m sure there is a way – it is common to carry forward claiming the deduction.

    With respect to your financial advice, I would go back to your advisor and ask them for assistance – you will have a penalty of 1% per month for the over-contribution balance over $2000. (You are allowed to have an overcontribution balance of $2,000).

    Whether you claim your deductions or not, you will have to pay the penalty if you exceed your $2,000 overcontribution allowance.

  • Chris

    Is there a limit to how long you can defer deductions? let’s say I contribute in 2009 and in 20 years old. Can I defer those deductions to say 2039 when I’m 50 or is there a limit of waiting 5 years or something?

    • Preet

      AFAIK it can be carried forward indefinitely, but you need to weigh the effect of lost growth on the smaller refund you might get now versus the higher refund later.

  • Chris

    If we’re talking about maximizing the growth of every last dollar you have we shouldn’t be getting tax returns to begin with. We should be applying to have Income tax not taken at a source and keep that money in our pockets right from the start so it’s earning money throughout the year. A tax return is simply getting your own money back from the government that you loaned to them at no charge. You’re better off not getting income tax withheld and paying it flat out at the end of the year. Refunds shouldn’t be the ultimate goal. Putting more money in your pocket should be. While they may seem the same, they are not.

    Thanks for the clarification on the carry forward though.

  • Jeff


    As with ALL your other articles, you’ve done a fantastic job here. Thanks for continuing to provide this free, and very useful, service.


  • Carlos

    Another advantage that I have found from deferring the deduction of your RRSP contribution that not many people know of is that you could position yourself in such a tax bracket that you might start enjoying some extra income, tax free.
    For example, a family like mine with an income around $70K/year, with 3 kids, will be better served (In my humble opinion for I am not an expert in this matter) by delaying their deduction by 3 years; by doing so they could very well position themselves in such a low income level (approximately $32,000) that will enable them to:

    1.- Claim better Child tax benefits
    and receive the following which would have not been possible before

    2.- Claim GST/HST tax credit
    3.- Claim low income family payments
    4.- Receive Canada Learning bond ($500 for EACH kid born on or after January 1, 2004)
    5.- Receive National Child Benefit Supplement for low income family.

    I have found that for family like mine will make more sense to wait three-four years before claiming the deduction. Does this make sense to you? In my case it will also help me next year for I am moving from a 36% to a 43% price bracket.

    So next year would be my time to make this deduction (3 years after my last claim), but I think I might wait longer for I bought a property in the State at 33% the value that this had back in 2007 and I might use this deduction to shield potential big capital gains in the next 4-5 years when I go to sell this property. Does this make sense? How do i calculate the benefit of doing this? any ideas.

  • Chris

    I just want to clarify something here that is confusing me. My wife bought $4000 of RRSP’s in the first 60 days of 2010. However, upon doing her taxes, I noticed that her RRSP deduction limit was zero! This was because she was on maternity leave and basically did not have much income the previous years. So am I able to carry this forward to future years or has she overcontributed and must pay a penalty?


    • Preet

      @Chris – Just claim it on next year’s return as a contribution for 2010’s tax year. While a contribution made in the first 60 days of 2010 can be used for 2009’s return, you can also elect to use it for 2010’s tax return. There shouldn’t be a penalty at this point… But always check with your own qualified advisor for specific situations.

  • Chris

    Thanks for the advice. That’s what I was planning to do. Further to this, your article mentioned that you can carry forward RRSP deductions indefinitely. Would that apply in my situation or would I have to use the deduction in 2010 tax year?

    • Preet

      @Chris – you can carry them forward indefinitely, yes.

  • Chris


  • Susan

    Last year, in Sep 2009, I contributed $4300 to my RRSP. This was the RRSP deduction limit shown on my 2008 Notice of Assessment. I have a $2000 overcontribution carried forward from previous years.

    In my 2009 tax return, I didn’t deduct any of my available contribution because my income for 2009 was only $1280.

    When I received my 2009 Notice of Assessment, it shows my RRSP deduction limit for 2010 is $4550, which is the $4300 from 2009 plus the 18% of $1280.

    At the bottom, it states that I have the $6300 of unused contributions available for 2010. And that if this amount ($6300) is more than $4550, I “may” have to pay tax on the excess contributions.

    My question is: Do I have excess contributions than what’s legally allowed? I, myself, don’t think so, based on what I’ve read on all the materials about RRSP contributions. But the statement on the bottom of my Notice of Assessment is confusing me, so I’d like your opinion on this matter.

    • Preet

      As always, best to check with an account, but it looks like you don’t have to worry. You can carry forward the unused contributions made indefinitely and deduct them as you see fit in the future. There should be no tax owing because you did not overcontribute.

  • Heidi

    I had a severance payment rolled into my RRSP in 2007. My RRSP contribution limit for 2007 was $69K, which my contribution fell within. I understand that you can carry forward an RRSP contribution to a future year. My question is, can the RRSP contribution made in one particular year be split over more than one tax return? For example, a $60K contribution in 2007 split into a $20K deduction (or some other proportion) for each of 3 years 2007-09. Thank you.

    • Preet

      Yes, no problem.

  • Ledtim

    “Let’s assume that you make an RRSP contribution of $1,000. If your marginal tax rate is 20% for that tax year, you will generate a $200 refund if you claim the RRSP deduction for that year. But if you know that you will be in a higher marginal tax bracket the following year, say 40%, then you could wait to use the deduction until that time and get a $400 refund. That is essentially a 50% guaranteed rate of return on that money.”

    Wouldn’t that be 100% rate of return? Since PV is -200, FV is 400, and period is 1 year.

    • Preet

      @Ledtim – you are correct. Good catch! Post amended with credit.

  • toodles

    Not sure if anyone will respond to my inquiry as this comment was posted over 4 years ago. I understand you can carry forward your RRSP deduction indefinitely, however is there a maximum amount you can carry forward? I believe the CRA website indicates that “you have to pay a tax of 1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000.” Can anyone please clarify? Thanks!

    • Preet

      @toodles Yes, you can carry forward unused RRSP contributions indefinitely. However, the 1% per month penalty you were talking about pertains to over contributions which only applies after you use up all your contribution room and then the $2000 lifetime over contribution limit as well.

  • Gopi

    Hi, this is a great blog. I have a question about my RRSP situation. I filed my first Canadian return for 2010 and made a contribution to RRSP on Feb 2, 2011and forgot to report it in my 2010 tax return and hence didnt claim deduction that amount. Can I claim a deduction on that contribution directly for 2011, in addition to the contribution I made on Feb 2, 2012 or do I have to first amend my return for 2010 to report the contribution made on Feb 2, 2011? You reply is greatly appreciated.

  • Tom

    Thanks Preet, this is my situation exactly. I’m in my last year of University and made a $1,500 contribution because I worked a co-op term last year. I expect to be in a much higher bracket next year with a full-time salary and no more tuition credits, so I’m going to carry forward.