The RRSP contribution limit for 2021
According to the CRA, you can contribute up to $27,830 towards your RRSP compared to the maximum contribution limit of $27,230 in 2020. Canadians can contribute up to 18% of their income or the maximum contribution limit towards the RRSP. This means Canadians with an annual income of $154,611 will have a maximum contribution room ($154,611 *18%) of $27,830 towards the RRSP. The RRSP Contribution deadline for 2020 is March 1, 2021.
TIP: An RRSP is a tax-sheltered account and any contribution towards the registered account is tax-deductible.
The TFSA contribution limit is $6,000 for 2021
This year the announced a $6,000 increase in the TFSA for 2021. This means the maximum cumulative contribution room will increase to $75,500, up from $69,500 in 2020.
Every year, the TFSA contribution room is indexed to inflation, and the CRA rounds it to the closest $500.
TIP: Contributions towards the TFSA are not tax deductible, however, any withdrawals in the form of dividends, capital gains, and interests are exempt from CRA taxes.
CPP enhancement for 2021
The CPP enhancement will impact millions of employed and self-employed Canadians that contribute towards the pension fund. This will also impact businesses that need to cover 50% of employee contributions.
The CRA states the maximum pensionable earnings for 2021 will rise from $58,700 to $61,600 due to a rise in CPP contribution rates. In January 2021, the employee and employer contribution rate will increase to 5.45%, up from the current 2020 figure of 5.25%. This means the contribution rate for self-employed Canadians will increase to 10.9% from 10.5%.
TIP: The CPP enhancement might result in a smaller paycheck for Canadians, but it will also lead to higher income in retirement. The basic exemption amount for Canadians will remain at $3,500 for 2021.