Those of you who pulled out your Notice of Assessment (NOA) in anticipation of becoming better acquainted with it (after being spurred on by last week’s blog) may have noticed that there is much more to it than I described.
That’s why we’re having a PART 2 where I explain the other components of your NOA. This is practical walk-through so, if you don’t have your NOA out already, go get it now so you’ll know what I’m talking about. Don’t worry, I’ll wait. I’ve got nowhere to be but on this page.
Got it? Good. Look up in the little box at the top where it says Tax Year, it should read 2012 since, in all likelihood, you probably haven’t done your 2013 taxes yet—unless you’re a real keener, of course!
Okay, the next line/title should read Your 2013 RRSP Deduction Limit Statement, and what you see below that line is how the CRA calculated how much you can contribute to your RRSPs in 2013.
The next line is RRSP Deduction Limit for 2012. Now this can be a little confusing since we’re already in the year 2014. So why on earth is it there? Well CRA is keeping track of everything based on your previous year’s contributions and this isn’t intended to confuse you, even though most people see this number, get confused, and hand me their NOA so I can figure it out. The deduction limit for 2012 is here so you can see your previous balance, subtract how much you contributed and deducted in 2012, and discover the difference, which is a carry-forward for you in terms of the room you have— i.e. Unused RRSP Deduction Limit at the end of 2012—and not to be confused with the bottom line we discussed last week—i.e. Unused RRSP contributions available for 2013.
Plus: Ah, here’s where it gets interesting. The amount you can contribute to your RRSP is actually a percentage—18% to be exact—of your earned income in the previous year, in this case 2012. This is because CRA doesn’t yet know how much money you made in 2013. Still with me?! Hello? You’re doing a great job so far, we’re almost done, I promise.
For example, if your earned income was $100,000, then your contribution amount would be $18,000 and that amount gets added to the total amount you can contribute. (Did you notice how I used $100,000 as my example and not something like $76,543.21? I’m always trying to make things as easy as possible.)
There are two more lines that are very interesting; especially for me given that just this year I caught a mistake that CRA made. These are pension adjustment and net past service pension adjustment. When I was helping a couple sort out their RRSP contributions for this year, his pension adjustment said, “$1,110,” when in past years it was a minimum of $8,000. I called their pension managers and asked what they had submitted to CRA and—guess what?—it was supposed to be $11,110. CRA had left out a 0! This doesn’t happen often, but you can see why being familiar with your NOA is a good thing. And, an extra set of eyes having a look at it can help as well.
The pension adjustment amount, or the net past service pension adjustment or the pension adjustment reversal are all numbers (if they apply) that are provided by your pension people—you know those people who manage your pension? You are a lucky dog if you have one.
Okay, and just how do pensions work? Well, there are different types... but we’ll have to leave that for next week. I bet you can’t wait!