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Splitting a Contribution Between Years
Contributions made during the year’s first 60 days can be applied to your deductible limit for the current year or the previous one.
To maximize the value
of your deduction, go for the year when your marginal tax rate is higher.
For example, suppose your marginal rate is 50% for one year and 48%
the next. A $5,000 RSP contribution saves $2,500 in tax at a 50% rate,
and $2,250 at a 48% rate.
You can also make your normal RSP contribution, but delay claiming your
deduction until you are in a much higher tax bracket. You would submit your
contribution receipt with the tax return for the year in which the contribution
was made, but also include Schedule 7 which lets you indicate how much –
or how little – of the associated deduction you wish to claim. The tax department
will then track your undeducted contributions. This is different than an
overcontribution in which you put in more than you’re allowed. Here, you’re
using your allotted room but simply not claiming the deduction for it.
Understand, though, that this means you lose use of your tax savings until the
deduction is claimed. Consider this only if your income will rise substantially
over the next few years.
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