How CRA calculates your room
Income Tax Act s. 146 sets the formula: 18 % of prior-year earned income (employment + self-employment + net rental), capped at the indexed annual maximum, plus any unused room you didn’t contribute in prior years, minus the pension adjustment (PA) that CRA estimates for any workplace pension plan you’re enrolled in. The 2025 cap is $32,490, up from $31,560 in 2024.
The carry-forward is the most-overlooked part
Unused RRSP room carries forward indefinitely. Most Canadians under 35 have tens of thousands of unused room built up. Pulling Notice of Assessments back to your first year working will often reveal $30k–$80k of available room. This is what enables strategies like “contribute a windfall when you’re in a high bracket and let it grow tax-deferred for 30 years.”
RRSP vs. TFSA: a quick rule of thumb
If you’ll be in a lower tax bracket in retirement (typical for high earners), RRSP wins — you deduct at a high rate now and withdraw at a low rate later. If you’ll be in the same or higher bracket (typical for early-career professionals or anyone expecting big inheritances or rental income in retirement), TFSA wins — no tax on withdrawal. For most middle-income Canadians the right answer is “both, but TFSA first until you’ve exhausted that room.”