A Registered Retirement Savings Plan ("RRSP") is a government sanctioned tax shelter, or tax deferral mechanism. The RRSP allows Canadian individual taxpayers to deduct, from income subject to tax, specified amounts contributed to the plan. These amounts are invested primarily in Canadian securities, which may earn interest, dividends, or capital gains, depending on the plan, free of current tax, so that they grow more rapidly than would the same investments made by the taxpayer directly.

There are thus two separate benefits to an RRSP; first, the current tax savings resulting from the deduction of contributions; and second, the tax-free earnings on money while in the plan.

Note that, like most tax shelters, the RRSP merely provides a deferral of tax. When you withdraw money from the plan, either for current needs or for retirement income, that money will be subject to tax. However, the tax deductions and tax-free accumulations will have allowed you to save much more than if you had merely saved the same amounts without contributing them to a plan.

An individual can make RRSP contributions for deduction on his or her 2003 income tax return at any time between January 1, 2003 and February 29, 2004, up to a limit calculated below. Although the limit will be reported to most taxpayers on Notices of Assessment received in 2002, the following calculation will assist those who have not received such an assessment, or have reason to doubt it. This calculation shows your overall contribution limit from all sources, subject to certain limitations.

RRSP Calculation for Deduction on 2003 Personal Income Tax Return
The 2003 current contribution limit is the lesser of A and B, defined as follows:

A. 2002 earned income (defined below) X 18%
B. $14,500 minus 2002 Pension Adjustment, minus 2003 Past Service Pension
   Adjustment plus 2003 Pension Adjustment Reversal (PAR)

2003 FINAL contribution limit will be:

• The 2003 current contribution limit (as calculated above)
• PLUS unused contribution room from previous years
• PLUS special rollover contributions.

Notes:
1. The current contribution limit will be frozen at 14,500 until 2004 and indexed
    thereafter.
2. The 2002 Pension Adjustment is taken from the 2002 T4's (box 52) and 2002
    T4A's (box 34).
3. The 2003 Past Service Pension Adjustment is taken from the 2003 PSPA
  information slips.
4. The 2003 Pension Adjustment Reversal is taken from the 2003 PAR information
     slips.

Earned Income

Earned income is defined as follows:

Sum of:

• Total employment earnings ( minus annual union, professional or like dues and employment expenses);
• Net income from self-employment or a business in which you were an active partner
• Royalties for a work or invention of which you were the author or inventor;
• Alimony or separation allowances received or reimbursed;
• Net research grants received;
• Employee profit sharing plan allocations;
• Supplementary unemployment benefit plan payments received (excludes UI benefits received)
• Disability benefits received under CPP or QPP;

Minus the sum of:

• Current year loss from self-employment or a business in which you were an active partner;
• Current year rental loss from real property;
• Deductible alimony or separation allowances paid;
• Business income from the disposition of eligible capital property in excess of recaptured tax deductions.

Note:  Investment income, taxable capital gains and most pension income are not included as earned income.

Excess contributions

Excess contributions which may be contributed to an RRSP are limited to $2,000 effective January 1, 1996. Contributions over this amount are subject to a penalty tax of 1% per month until withdrawn.

The above provides general information only.  It should not be regarded or relied upon as accounting or taxation advice or opinions. Logan Katz LLP Chartered Accountants would be pleased to provide more information or specific advice on matters of interest to you.

All contents are Copyright © 2003, Logan Katz LLP Consulting Inc.  All Rights Reserved.