Every year several key maximum dollar amounts are reviewed and generally increased. This includes TFSA contribution limits, RRSP entitlement limits, CPP, and YMPE limits. At the end of every year Canada Revenue Agency reviews all these programs and releases the next year’s information.

In this post, we will look at TFSAs, RRSPs, CPP, and YMPE. If you are not sure what all of those are keep reading.

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New TFSA Max for 2021

The current maximum contribution room for the Tax-Free Savings Account is $69,500. As of January 1, 2021, every Canadian age 18 or older will be allotted an additional $6,000 of contribution room.

It can be somewhat confusing trying to figure out your eligible room. So, for your convenience, we created a nice little table showing your contribution room by year of birth.

The TFSA is arguably the best investment vehicle currently available in Canada. If you haven’t utilized your TFSA room yet, sit down with your financial planner and investment advisor to discuss that opportunity.

For more information on TFSA’s check out the following articles:

• How to Use a Tax-Free Savings Account (TFSA)
• Using A TFSA vs. Buying a Rental Property
• You Should be Maxing Out Your TFSA
• A Beginners Guide to The TFSA
• 4 Reasons to Max Out Your TFSA

RRSP Maximum for 2021

For some, the increase to the max RRSP entitlement will not be relevant. As many of you know, RRSP room is based off of 18% of earned income. However, this amount is capped.

In 2020, the maximum that could be contributed to an RRSP was $27,300. In 2021, that limit will be increased to $27,830. That $27,830 might look familiar to some of you. That’s because it was the money purchase (MP) limit for 2020.

Each year you can know the following years RRSP limit in advance. So for 2021, the money purchase limit was announced at $29,210. That means that the 2022 RRSP contribution limit will be $29,210.

For those wondering what the money purchase limit is, it is the limit placed on Registered Pension Plans (RPPs). RRSP limits lag RPP limits because RRSP limits are based on the previous year’s earnings. This is getting quite complex and most people will not need to understand this.

CPP, YMPE, and OAS for 2021

Canada Pension Plan (CPP), which we have talked about in the past, also will generally increase each year. With CPP, there are a couple of things you want to be aware of. The first thing is the CPP contribution rate. In 2020, both employees and employers had to contribute 5.25% to CPP. In 2021, that amount is increasing to 5.45%.

However, there is a cap on how much you contribute to CPP. This cap is called the Yearly Maximum Pensionable Earnings (YMPE). Any income above $3,500 up to the YMPE will have mandatory CPP contributions. Any income above that threshold, CPP contributions are not allowed. In 2021 YMPE is set at $61,600, up from $58,700 in 2020.

This means that if you make $61,600 or more in 2021 total CPP contributions will be $6,332.90. Half ($3,166.45) will be paid be the employee and the other half by the employer. Any income below the $3,500 threshold is not subject to CPP contributions.

Lastly, the maximum amount that is received by those eligible for OAS has also increased. In 2020, the maximum annual amount was $7,637 ($636/month). This has increased to $7,713 annually (~$643/month). With the increased OAS benefits, the clawback thresholds have also increased. OAS clawbacks will only start once income exceeds $79,845. All OAS will be clawed back once income reaches $126,058.

Conclusion

As 2020 comes to close, and the new year is nearing be sure to review your finances. If you are able, max out your TFSA and RRSP. Perhaps you income and expenses have changed and your needs for 2021 have as well. Make sure you are reviewing your plan with your financial planner especially before implementing any changes.

Sources:

https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/whats-new.html

https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html