RRSP — Registered Retirement Savings Plan
18% of prior-year earned income, capped at $33,810 in 2026. Tax-deductible going in, tax-deferred growth, fully taxable on withdrawal. Plus the salary-vs-dividend section that makes-or-breaks an incorporated operator's tax position.
The 2026 numbers
| Item | 2026 value |
|---|---|
| Contribution limit | 18% of prior-year earned income, capped at $33,810 |
| Earned income to max RRSP room | ~$187,833 in 2025 generates the $33,810 cap |
| Carry-forward | Unused room carries forward indefinitely |
| Over-contribution buffer | $2,000 lifetime (no penalty); 1%/mo above that |
| Tax deduction on contribution | Yes — claim in current or any future tax year |
| Tax on withdrawal | Fully taxable as income |
| Home Buyers' Plan (HBP) | Withdraw up to $60,000/individual ($120,000/couple) tax-free; 15-yr repayment (1/15 per year, starting year 2 after first withdrawal) |
| Lifelong Learning Plan (LLP) | $20,000 ($10K/yr × 2 yr) tax-free for full-time education; 10-yr repayment |
| RRIF conversion deadline | By December 31 of the year you turn 71 |
| Self-employed income | Net business income counts as earned income — adds to RRSP room |
| Dividend income | Does NOT generate RRSP room |
The deduction-timing strategy most content underplays
You can contribute now, deduct in a higher-income future year. If your year-1 business is at $40K but your year-3 will be $150K, contribute now (use the room before you lose track of it), defer the deduction to year-3 when your marginal rate is 15-20 points higher. The CRA lets you carry the unclaimed deduction forward indefinitely.
If you're a salaried employee
Standard play: contribute up to your room, deduct in the year you contribute (simplest case). If your tax bracket today is higher than your projected retirement bracket, RRSP wins over TFSA. If they're roughly equal, TFSA wins (more flexibility).
Stack with the HBP if you're saving for a home — withdraw up to $60K tax-free for a down payment (couple = $120K). Stacks with FHSA. Together: $40K FHSA + $60K HBP = $100K of pre-tax money for the down payment, per individual.
If you're an incorporated AB CCPC owner — the salary-vs-dividend deep dive
Ground truth: salary is marginally more tax-efficient in Alberta and most provinces in 2026, but the gap has narrowed. The decision should not be made on immediate-tax-savings alone — it should be made on (a) CPP entitlement, (b) RRSP room, (c) borrowing capacity (mortgage approval).
| Factor | Salary | Dividend (non-eligible) |
|---|---|---|
| Marginal tax efficiency (AB 2026) | Slight winner | Slightly more tax overall |
| CPP contributions | Required (5.95% × 2 = ~11.9% effective for self-employed); maxes at YMPE = $71,300 in 2026 | None — no contribution, no future entitlement |
| RRSP room generated | Yes — 18% of salary, max at ~$187,833 → $33,810 RRSP room | None |
| Income for mortgage qualification | Banks like salary — easier mortgage approval | Banks discount dividend income unless 2-yr history |
| EI / parental leave | EI optional, parental leave benefits available | None |
| Deductible to corp | Yes (reduces corp income) | No (paid from after-tax retained earnings) |
| Corporate tax cost before paying out | $0 — salary is expensed | Corp pays SBD rate (~11% AB combined) first |
The standard 2026 recommendation for an Alberta CCPC owner
- Pay yourself a salary up to YMPE ($71,300) to max CPP — guarantees future CPP pension.
- Top up to ~$180K total salary if you can afford it, to fully fund $33,810 RRSP room.
- Above $180K, additional compensation as dividends — slightly cheaper, no more RRSP room being generated anyway.
- For year-1 operators with $40-100K take-home, the CPP question dominates: salary up to $71K minimizes your "no CPP retirement" risk.
Gap in standard content: the YMPE rises every year. The "max CPP" salary target should be parameterized — see functions/lib/cra-limits.js for the live number.
FAQ
What if I over-contributed by accident?
Within the $2,000 buffer: no penalty, just don't claim the deduction. Above the buffer: file Form T1-OVP within 90 days to withdraw the excess — penalty is 1%/mo on the excess until removed.
HBP vs FHSA — which first?
FHSA first (tax-deductible going in AND tax-free coming out). HBP is technically a withdrawal you have to repay over 15 years. If you have room for both, use both — they stack.
What's a Spousal RRSP?
Higher-income spouse contributes to the lower-income spouse's RRSP, gets the deduction, but the lower-income spouse owns the assets. Used for income-splitting in retirement when the higher earner's pension would push them into a higher bracket. Talk to a CPA before structuring this.