The concept of “unused deductions” provides a tax and financial planning opportunity.

An used deduction is a contribution made within your contribution room limit that has not yet been claimed as a deduction. The claiming of RRSP deductions is “permissive” in tax law, meaning that you decide when to claim it.

An unused deduction is different from an excess contribution, which is a contribution beyond your contribution room limit.

Excess contributions are restricted to $2,000 under law. The only limit to an unused deduction is the size of your personal contribution room.

Planning Considerations

  • It is well known that tax sheltering investment income in an RRSP is a good thing. Thus, for instance, you may have come into an inheritance while you are unemployed, on maternity leave or back at school. You might choose to make an “unused deduction” contribution to get this money into your RRSP, but defer claiming the deduction until you return to the work force
  • Your income may spike up in a particular year, perhaps from a large one-time capital gain or severance. You may choose to hold back your deduction claim in one year, knowing that your income will be higher next year.