A Notice of Assessment (NOA) is an annual statement sent by the Canada Revenue Agency (CRA) to taxpayers, detailing how much income tax is owed, any tax refunds or credits, and further information such as deductions from total income. The NOA serves as a crucial document for understanding your tax obligations and keeping track of your RRSP contributions.
Key Takeaways
- For Canadian taxpayers, a Notice of Assessment (NOA) is a government-issued estimate of taxes owed for a given year.
- Corrections made to these estimates will also appear on an NOA, and filers have 90 days to formally object or make amendments to any of the information on the document.
- An NOA may also signal that a business or individual has been identified for a tax audit.
Understanding Notices of Assessment
The figures in an NOA are calculated based on the information taxpayers submit on their tax returns. It lists any changes to them, including corrections made to the information they submitted.
An NOA also indicates whether an individual or business is subject to an audit. Tax filers have within 90 days of the date noted on the NOA to make formal objections online or by mail. They would have to provide supporting documentation, but they won’t owe any disputed tax payments until the CRA completes its investigation.
Registered Retirement Savings Plan (RRSP)
The NOA provides important information about a tax filer’s Registered Retirement Savings Plan (RRSP). It lists the maximum contributions an individual can make toward their RRSP for the following year. This amount is equal to 18% of the previous year’s earned income or the maximum amount for the current tax year, whichever is less.
A tax filer can claim contributions to an RRSP as a deduction from overall taxable income. Taxpayers are not required to take contributions as deductions in the tax year they make them. They can postpone RRSP deductions until the following year if they expect to have a significant increase in income that will push them to a higher tax bracket. These are known as unused contributions. The move would allow them to claim a larger reduction on a bigger tax bill.
However, individuals would owe a tax if unused RRSP contributions from prior years and current contributions exceed the RRSP deduction limit shown on their latest NOA by more than $2,000. The tax is 1% per month on the excess amount.
Taxpayers can also make deductions from certain transfers they make into their RRSPs without affecting their deduction limits. The CRA lists these as certain lump-sum amounts from a non-registered pension plan relating to services rendered during a time when a tax filer was a nonreside of Canada, eligible pension income from an estate or a testamentary trust, and amounts received from foreign retirement arrangements, including United States Individual Retirement Accounts (IRAs).
Examples of RRSP Contributions
If someone who earned $50,000 in income made contributions of $1,000 to their RRSP for a given year, that person would be taxed on $49,000 of income. If a person doesn’t meet their maximum contribution limit for a given tax year, that individual can roll over the amount left over into the following year.
For example, if a person’s contribution limit for a given tax year was $15,000, but they had made no contributions toward an RRSP that year, the following year’s limit would be that person’s maximum contribution limit for the year plus $15,000.
Related Terms: CRA, income tax, tax refund, RRSP contributions, tax credit.
References
- Canada Revenue Agency. “Notice of assessment: Understand your NOA”.
- Canada Revenue Agency. “Objections and Appeals”.
- Canada Revenue Agency. “How contributions affect your RRSP deduction limit”.
- Canada Revenue Agency. “What to do with unused RRSP, PRPP or SPP contributions”.
- Canada Revenue Agency. “What happens if you go over your RRSP deduction limit?”
- Canada Revenue Agency. “Transferring”.
