How does an RRSP contribution reduce my taxes in Ontario?

Contributing to a Registered Retirement Savings Plan (RRSP) gives you a deduction (not a credit) against your income — each dollar contributed reduces your taxable income by a dollar. The tax saving depends on your marginal tax rate: combined federal and Ontario provincial rates mean higher earners save more per dollar contributed. This is a federal program under the Income Tax Act, administered by CRA, and available equally to Ontario residents.

Your RRSP contribution room is calculated by CRA based on 18% of your prior year's earned income, up to the annual dollar limit, minus any pension adjustment. Unused room accumulates indefinitely and is shown on your Notice of Assessment each year.

Contributions must be made by the last day of February to be deductible for the prior tax year. You can choose to deduct in a future year if doing so is more advantageous — for example, if you expect higher income next year, carrying the deduction forward gives a bigger benefit. Over-contributing beyond $2,000 of your cumulative room triggers a 1% monthly penalty tax on the excess.