Practical Law Canada Glossary 8-579-1865 (Approx. 3 pages)
Glossary
Registered Retirement Savings Plan (RRSP)
A savings plan for individuals which allows the individual to defer tax on money deposited by them, their spouse, or their common-law partner. Registered retirement savings plan (RRSP) contribution limits are based on income of the owner and are tax deductible to the depositor at the time of deposit. The contribution limit is 18% of the taxpayer's earned income subject to a maximum.
Tax is generally payable when RRSP contributions and investment income earned thereon is withdrawn (except where, at age 71, the RRSP is continued into a registered retirement income fund (RRIF) or used to purchase an RRSP annuity). The two main advantages of an RRSP both relate to tax deferral. First, the taxpayer can deduct the annual contribution (subject to the contribution limits) from their taxable income, which defers the tax on that income until funds are withdraw from the RRSP. Second, the income earned within the RRSP is not taxed until it is withdrawn, resulting in an additional tax deferral.
RRSPs are primarily designed to encourage savings for retirement. Contributions can also be used to purchase a first home, through the Home Buyers' Plan (the maximum withdrawal under this plan is $25,000) or to finance the education of the owner or the owner’s spouse or common-law partner, through the Lifelong Learning Plan. Withdrawals under these plans are not taxable, but must be repaid to the RRSP, with certain minimums payable each year. No interest is payable on withdrawals when repaid.