Understanding your Notice of Assessment
A Notice of Assessment is an annual statement provided by the Canada Revenue Agency showing taxpayers the amount of tax they have to pay back for a given year.
The numbers on your NOA are determined based on the information provided at the time when you did your taxes and it will also include all corrections or changes you made after the original submission.
Understanding the Registered Retirement Savings Plan (RRSP)
On your Notice of Assessment, you will acknowledge important information about your Registered Retirement Savings Plan (RRSP). This section represents the maximum about of contributions that you can put towards your RRSP the following year. The most contribution you can make towards your RRSP is 18% of the previous year’s earned income or the maximum amount of the current tax year.
There is a possibility that a tax filer will claim contributions to associate RRSP as a deduction from overall dutiable financial gain. However, it is an option, but taxpayers are not forced or required to make contributions as deductions, they make them. The RRSP deductions can be postponed until the subsequent year if the taxpayer expects a significant increase in financial gain that might push them to a higher tax bracket. Also referred to as “unused contributions”. By doing so, this will allow them to assert a bigger reduction on a bigger tax bill.
There are other deductions that can be made by taxpayers from certain transfers without affecting the deduction limits. Some lump-sum amounts from a non-registered pension plan in which time the tax filer was not a Canadian resident, pension income from an estate or testamentary trust, or amount received from foreign retirement arrangements are on the CRA list for the exclusions from the deduction limits.
Let’s assume somebody who attained $50,000 in income put $1,000 in their RRSP for that given year. Now the person will only be taxed on that $49,000 of income. If the contribution limit of that given year is not fully used, the individual can transfer over the amount that is left into the following year. To give a clearer understanding, let’s say a person had a limit of $16,000 for a given year and the individual made no contributions, the following year, it will be that $16,000 plus the maximum contribution of that following year.
A Financial Advisor can always help if you need some clarification on any of the topics discussed!