Question #18 – Taxation

At the end of 2017 Larry had unused RSP contribution room of $10,000. During 2018, he earned a salary of $50,000 and reported total income of $53,000 (the difference is to account for taxable benefits). He made RSP contributions in the amount of $2,000 (from pre-tax dollars) and reported a pension adjustment (PA) of $6,000. Outside of his employment, Larry reported net rental income of $1,000 on an investment property he acquired two years ago. What is Larry’s unused RSP room for 2019?

  1. $8,000
  2. $11,180
  3. $11,540
  4. $11,720

Solution: When calculating Larry’s unused contribution room, we begin with $10,000 (which is the carry-forward room from 2017), and then add $9,720 (which is 18% of $54,000 ($53,000 + $1,000)). We arrive at $19,720. We then subtract Larry’s RSP contribution of $2,000 and his PA of $6,000. The calculation is $19,720 - $8,000 = $11,720. Larry’s net rental income of $1,000 will count towards earned income for purposes of computing RSP contribution room. The correct answer is d.