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Earned income is the pay and business profit the CRA counts when it works out your RRSP room. Your room for a year is 18% of last year’s earned income, up to a dollar cap of $33,810 for 2026. So $80,000 of earned income in 2025 gives you $14,400 of new room.
This page is about earned income as a tax term, the figure behind your RRSP room. It isn’t the same as your total income, and it isn’t the same as the amount on your pay stub.
What counts as earned income
The CRA builds the number from your return. It adds employment earnings and net self-employment income, then a few other items. It takes off some costs and losses. That’s why your earned income can differ from the box 14 figure on your T4.
| Added | Taken off |
|---|---|
| Employment earnings | Union dues and professional fees |
| Net self-employment income | Employment expenses you claimed |
| Net rental income from real property | Business losses and rental losses |
| Taxable support payments you received | Support payments you paid |
| CPP or QPP disability payments |
Some things aren’t on the list at all. Interest, dividends and capital gains don’t build RRSP room. Neither do RRSP withdrawals. If your income is mostly investments, your room may be a lot smaller than your total income suggests.
How earned income turns into RRSP room
The rule has two steps. Take 18% of last year’s earned income. Then compare it with the dollar limit for the current year and use the smaller number. The CRA lists $32,490 for 2025 and $33,810 for 2026.
The cap bites at about $187,800 of earned income (33,810 divided by 0.18). Below that, more pay means more room. Above it, nothing changes.
Two adjustments follow. A pension adjustment, which comes from a workplace pension, lowers your room. Room you didn’t use in earlier years carries forward, so the total you see on your notice of assessment is often bigger than one year’s 18%.
A worked example on $80,000
Say you’re an employee in Ontario with $80,000 of earned income and no pension plan. Your new room is $14,400. Our RRSP calculator shows the same figure for that input.
Now the payoff. If you put the full $14,400 in and claim it, the tool works out a tax bill that’s lower by roughly 29.6 cents on each dollar at that income level. In the calculator’s default case, a $10,000 contribution saved $2,965 in Ontario tax, so the real cost was $7,035. It’s a deferral, though. Withdrawals are taxed as income later.
Want the pay side of the picture? On $80,000 the take-home pay calculator shows $60,303 kept after Ontario and federal tax, CPP and EI. Room and take-home are different questions, so run both.
Do students and part-timers build room too?
Yes. There’s no minimum. Jess in Halifax earns $9,500 from a summer job and weekend shifts, so she builds $1,710 of room for the next year (9,500 times 0.18). It’s small, but the room doesn’t expire, and it waits for the year she has money to use it. Tips and bonuses on your T4 count like any other employment pay, so there’s nothing extra to track.
Earned income when you work for yourself
If you’re self-employed, the number that counts is your net business income, after expenses. A year with $120,000 of sales and $70,000 of costs gives you $50,000 of earned income, not $120,000. That gives you $9,000 of room the year after.
Business losses go the other way and reduce the total. Use the self-employed tax calculator to see the profit figure, and remember that it isn’t the same thing as the room figure.
Mistakes that catch people out
The first is using this year’s pay. Room comes from last year’s earnings, so a raise in 2026 helps your 2027 room.
The second is trusting a round guess. Your notice of assessment, form T1028 and your CRA account show your actual limit. Use that number, not 18% of what you remember earning.
The third is going over. The CRA charges 1% a month on contributions that sit more than $2,000 above your limit. So a $2,000 cushion exists, but why test it?
you have to pay a tax of 1 percent per month on your contributions that exceed your RRSP deduction limit by more than $2,000.
CRA, How contributions affect your RRSP deduction limit, canada.ca
Say you’re $3,500 over. Only the part past the $2,000 cushion is taxed, which is $1,500, so the charge is $15 a month until you take the extra out or build new room. A few bucks, sure, but it adds up quietly.
Earned income also matters outside RRSPs. Your CPP contributions depend on pensionable earnings, which are a different thing, and our CPP calculator covers those.
What this page is based on
The 18% rule, the 1% monthly charge, the definition of earned income and the 2025 dollar limit are from the CRA‘s RRSP deduction limit page and Guide T4040, RRSPs and Other Registered Plans for Retirement. The 2026 limit of $33,810 is from the CRA’s table of RRSP, TFSA and pension limits. Example figures come from our own calculators, using 2026 Ontario and federal rates.
Frequently asked questions
What is earned income for RRSP purposes?
It's your employment earnings and net self-employment income, plus items such as net rental income and taxable support received. The CRA then subtracts things like union dues, employment expenses and business or rental losses.
Do dividends and capital gains count as earned income?
No. They aren't on the CRA's list, so they don't create RRSP room.
What is the RRSP dollar limit for 2026?
$33,810. For 2025 it was $32,490.
Does my 2026 income count for my 2026 room?
No. The room for a year is based on the previous year's earned income.
Where do I find my actual limit?
On your notice of assessment or reassessment, on form T1028 and in your CRA account. Use that figure, because a pension adjustment or carried-forward room changes the total.
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