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What types of incomes Qualify For An RRSP?

Any person who has "earned income" can qualify. RRSP’s are of particular interest and value to those who are unable to participate in a registered pension plan because they are self-employed or because their employer has not established a pension plan. Even members of registered pension plans who are interested in increasing their retirement income may be allowed to make contributions to an RRSP. Members of deferred profit sharing plans or employees profit sharing plans may similarly make contributions to an RRSP.

For the purpose of calculating your eligibility to make tax deductible contributions to an RRSP, earned income includes;

1. Net employment earnings
2. Royalties to authors and investors for a work or invention
3. Alimony or maintenance payments received by a former legally married or common-law spouse
4. Amounts received under a supplementary unemployment benefit plan but not benefits under the Unemployment Insurance Act, 1971.
5. Research grants (Net of expenses)
6. Net income from carrying on a business as a proprietor or active partner
7. Net rental income from real property including recaptured capital cost allowance
8. Director’s fees
9. The taxable portion of disability income payments
10. Employee profit sharing plan allocations
11. CPP/QPP Disability Plan payments

The following amounts must be subtracted in calculating net employment earnings.

1. losses from carrying on a business
2. annual union or professional dues
3. deductible alimony or maintenance payments paid
4. losses from the rental of property

Here is an example of a calculation for "earned income" for your RRSP annual max.

1. Salary ............................................$40,000
2. Net Rental Income .......................$15,000
3. Total "Earned Income".................$55,000
4. Less:
5. Alimony Paid............................... $(10,000)
6. Qualifying Earned Income ............$45,000

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We are a Canadian Financial services organization specializing in advanced tax sheltering, wealth accumulation planning, business succession, and retirement planning.

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Last modified: December 14, 2008