Last updated on December 8, 2025.
Sure, nobody brags about a wild night of RRSP contributions. But when tax season hits and your refund shows up, you’re going to want to show off your savvy money moves.
Your Registered Retirement Savings Plan (RRSP) does a ton of heavy lifting when it comes to reducing your taxable income and boosting your tax refund. It’s a powerful retirement planning tool that also helps you save money right now. It’s such a good idea, in fact, that 6.3 million Canadians contributed to their RRSPs in 2023.
Josephine Machira, a Wealth Advisor at Vancity and Aviso Wealth, weighs in on how people can use RRSPs to reduce taxes and save on returns.
First things first: What’s the deal with RRSP tax deductions?
When you contribute to your RRSP, that amount is deducted from your taxable income. Meaning you pay less tax today, while your savings grow for tomorrow.
“An RRSP tax deduction is a reduction of your taxable income for a given year by the amount you contributed to your RRSP in that same year,” clarifies Josephine. “On the other hand, a tax credit lowers the amount of tax owed, based on your eligible tax credits.”
Here’s an example:
If you earned $80,000 this year and contributed $10,000 to your RRSP, you’ll only be taxed as if you made $70,000. That could mean a refund of about $2,800, potentially.
Tax credits are a little different. If you had a $1,000 tax credit amount, you’d cut your tax bill by a full $1,000. The government offers individuals tax credits, like:
- the Canada Employment Tax Credit,
- the Basic Personal Tax Credit, and the
- Spouse/Common-law Partner Tax Credit.
Real talk: Deductions don’t mean refunds (but they help).
A deduction lowers your taxable income. A refund happens when you’ve already paid more tax than you owe. The two are related, but not the same thing.
If your payroll deductions already covered your taxes for the year, your RRSP contribution could tip the scales toward a refund. But if you didn’t pay enough tax upfront, your RRSP deduction will reduce what you owe instead. Either way, it’s helping you save.
RRSP tax strategies from an expert.
RRSPs are one of the easiest ways to lower your taxes now while building wealth for later. Josephine outlines a few RRSP tax strategies she’s come across:
- Immediate tax deferral via RRSP contributions: When you contribute to your RRSP, that amount comes off your taxable income, lowering what you owe come tax time. Your RRSP savings then grow tax-deferred until you withdraw them later. Choosing the right investments while your money sits and grows will also help your savings work harder for you.
- Income smoothing: If you’re in a high-income tax bracket, RRSPs can help you reduce your income tax liability in a big way. The assumption is that your income will be lower when you stop working to retire, so when you withdraw from your RRSPs then, you’ll pay less tax than you would now.
- Contribute now, deduct later: You don’t have to claim your RRSP deduction right away. If you expect your income (and tax rate) to rise, you can contribute but hold off and claim the deduction in a higher-earning year for a bigger refund.
- Using the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP): First-time home buyers can withdraw $60,000 each from their RRSPs for the purpose of buying their first home and repay this amount back into the RRSP over 15 years. An RRSP holder can also withdraw $10,000 per year within the maximum $20,000 limit to fund full-time education. This must be repaid to the RRSP over 10 years.
- RRSP contributions to offset one-time income events: Got a big bonus, commission, severance, or capital gain? Contributing to your RRSP can help offset that extra income and reduce the taxes you owe.
- Spousal RRSPs: For couples with income discrepancies, spousal RRSPs can be a game changer. A higher-earning spouse can contribute to a spousal RRSP in their partner’s name and claim the tax deduction. This way, when the lower-income spouse withdraws funds in retirement, they’re taxed at their lower rate.
- Employer RRSPs: If you have a personal RRSP versus an employer group RRSP or pension, maximize your employer plan first to get the full employer contribution match. Extra savings can go to your personal RRSP.
What’s RRSP contribution room and can you use it to your advantage?
RRSP contribution room is the amount you can contribute to your RRSP in a given year without paying a penalty. But don’t worry, it’s not a use-it-or-lose-it situation. “Unused RRSP contribution room is carried forward indefinitely,” says Josephine. “It’s added to your RRSP contribution room earned in the following tax year.”
You can also use RRSP contributions to your advantage with smart strategies. You can max out your RRSP contributions when you have more cash flow or want to offset a higher-income year. Think of your contribution room like a flexible bucket that expands with your earning potential. Every year, you earn a new contribution room equal to 18 per cent of your previous year’s earned income (up to the annual limit).
It’s easier to figure out what’s right with some help. “Speak to an advisor to determine your goals,” says Josephine. “You can also use tools like income tax calculators to estimate the impact of your contribution. For instance, TurboTax’s Income Tax Calculator is a simple tool that helps you understand potential refunds or taxes owed.”
Josephine outlines a real-world example of RRSP contributions rolling over.
Let’s say it’s 2023, and it’s your first year earning an income. You earned $25,000. When you filed your 2024 income taxes, your 2024 RRSP contribution room would’ve been calculated as 18 per cent of $25,000 which equals $4,500.
Let’s assume you didn’t use this room in 2024. Therefore, your unused RRSP contribution room in 2025 would be $4,500, plus 18% of your earned income in 2024.
Say in 2024 you didn’t contribute to an RRSP , and you earned $28,500 that year. Your 2025 RRSP contribution room would be calculated as unused RRSP contribution room from previous years plus your earned contribution room in 2024: $4,500 (for 2023) + 18% of $28,500 = $5,130 (for 2024) = $9,630 room in 2025.
That amount keeps rolling over. So, once you’re making a significant income where you’re in a higher tax bracket, you can use your contribution room to lower your tax bracket.
“Don’t attempt to calculate your own RRSP contribution room,” says Josephine. “To verify your RRSP contribution room, log in to your CRA account or call CRA at 1-800-959-8281 (have your most recent tax filing with you to answer verification questions).”
A real-life example: How one Vancity member used an RRSP to minimize her tax liability.
Josephine shares a member’s story about using an RRSP to minimize her tax liability. The member, we’ll call them Alex, spent the bulk of her youth investing in real estate.
Following a recent life transition, Alex had to sell an investment property and incurred a large capital gain. This was her first time facing a potentially large tax bill, so Alex called up Josephine to ask how to minimize the income tax liability. Alex also wanted to determine how to make the most of her savings, as she didn’t intend to reinvest in real estate.
“We completed a financial planning review to understand her needs, future goals, and future financial story,” says Josephine. “We then set up a nest egg for her and her family to ensure she had sufficient funds to look after her short- and medium-term needs, as well as unexpected expenses.”
Josephine then saw that Alex had never contributed to an RRSP. She’d accumulated tons of unused RRSP contribution room over the years.
“Now that she’s in a high-income-earning year we used 100 per cent of her available RRSP contribution room,” says Josephine. “This helped her avoid income tax on her entire capital gain as well as her other income for the year. We also came up with a plan on how to invest these funds for her as she grows her future retirement fund.”
Beyond that, Josephine helped Alex contribute to a Tax-Free Savings Account (TFSA) to diversify her liquidity and make sure she had a separate, non-taxable pool of funds she could access when and if she needed to.
What’s the RRSP contribution deadline for 2026?
To count your RRSP contributions toward your 2025 tax return, you have until Monday, March 2, 2026.
“There are no noteworthy updates on how RRSPs work or RRSP to Registered Retirement Income Fund (RRIF) conversion age or deadline,” says Josephine. “But members should keep in mind we have January 1 to March 2, 2026, to process the first 60-day RRSP contributions to claim on 2025 income tax filings.”
It’s always 60 days into the new year but double-check the date. It can shift if it lands on a weekend.
Use your RRSP refund to maximize its potential.
Sure, a tax refund feels like free money, but really, it’s your money coming back to you. So instead of splurging on a new espresso machine (tempting, we know), think about ways a refund can keep working for you.
Beyond paying down debts, you can use your RRSP refund to make even more money.
Josephine says that to maximize your money’s potential in the long run, consider using your RRSP income tax refunds to:
- Save in a TFSA to diversify liquidity. This gives you a non-taxable source of funds for you to pull from in case of unexpected or emergency events. It also offers tax-free savings growth to avoid higher taxes in retirement.
- Reinvest into your RRSP for further income tax reduction. On top of your regular contributions, reinvest your refund for even more savings.
“Try to plan ahead of your refund. That way, you’ll have plenty of time to make an informed decision”, says Josephine. “And avoid those impulse-bought items such as an espresso machine.”
Your RRSP is so much more than a retirement tool.
Besides a powerful retirement tool, your RRSP is a tax strategy, a savings habit, and a financial safety net all rolled into one.
And remember, you don’t have to figure it out alone. Talk to a Vancity advisor to make the most out of your RRSP. Who knows, you might pay less in taxes than you thought!
Mutual funds other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is not intended to be investment, tax or other advice and should not be relied on without seeking the guidance of a professional to ensure your circumstances are properly considered. provide. Please see our Terms of Use.
