A Registered Retirement Savings Plan lets Canadians deduct contributions from income and defer tax on investment growth until the funds are withdrawn in retirement.
Contributions to an RRSP are tax-deductible, reducing your taxable income in the year you contribute, and investments grow tax-deferred inside the plan. Tax is paid only on withdrawal, ideally in retirement when your income and tax rate are lower. Contribution room is 18% of earned income up to an annual maximum, plus any carried-forward room.
Because only salary (not dividends) generates earned income, an owner-manager's choice to pay salary partly determines their RRSP room. Withdrawals are fully taxable, except under the Home Buyers' Plan and Lifelong Learning Plan, which allow temporary tax-free withdrawals for specific purposes.
You contribute $18,000 to your RRSP and deduct it, cutting your taxable income by $18,000 this year. The investments grow tax-free until you withdraw them in retirement, when they are taxed at your then-lower rate.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
Book a Free 15-Minute CallCommon questions regarding our compliance workflows and service guarantees.