Did You Overcontribute To Your RRSP?

by Guest on November 25, 2010

 

 

  • You can overcontribute to your RRSP by up to $2,000 without being penalized. However, you cannot claim a deduction for the excess amount.
  • If you overcontribute by more than $2,000, you are subject to a one per cent penalty tax for each month you are in excess of that. You have to complete a T1-OVP Individual Tax Return for RRSP Excess Contributions to calculate the amount of the overcontribution and penalty tax. This form must be filed, and the tax remitted, within 90 days from the end of the year (March 30, 2011 if there was an excess amount in the plan at the end of a month in 2010.)

  • You can request a waiver of the penalty tax if:
    • The excess amount arose as a consequence of reasonable error; and
    • You can demonstrate that you are taking reasonable steps to eliminate it.
  • If you discover that you have overcontributed, you should try and withdraw the excess amount as soon as possible. Although you must include the withdrawal in income on your tax return, you can claim an offsetting deduction as long as you do so within the required time frame and the following conditions are met:
    • You reasonably expected to be able to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
    • You did not make the contribution with the intention of later withdrawing it and deducting the offsetting amount.
  • You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.
  • Without a T3012A, you can still withdraw the excess amount but the financial institution will withhold tax. Use Form T746 when you file your tax return to claim the offsetting deduction and a credit for the tax withheld.

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H&R Block Canada has been preparing taxes for more than 40 years and is Canada’s leading tax preparation firm. Headquartered in Calgary, Alberta, the company serves Canadian taxpayers in more than 1,100 offices across the country. H&R Block Canada Inc. is a subsidiary of H&R Block, Inc., a diversified company with subsidiaries providing a wide range of financial products and services. Additional information about H&R Block Canada is available at 1-800-HRBLOCK or visit www.hrblock.ca for more tax tips.

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{ 27 comments… read them below or add one }

James March 9, 2011 at 4:51 pm

This is an extremely helpful post. I understand this situation is very rare but please understand that you have greatly helped me with this information.

I was wondering what is the best way to go about requesting a waiver? (I have multiple correspondences and am willing to demonstrate that this was in error and I have made many good faith attempts to fix the issue.)

Thanks!!

Cleo Hamel March 10, 2011 at 12:41 pm

James – I think what you are looking for is the form to take a deduction for the withdrawn excess RRSP amount. If the RRSP over-contribution has been withdrawn and tax withheld, you would file a T746 form with the tax return for the year of the withdrawal and take a deduction on line 232.
Or if I’m mistaken about your question and you are looking for the form to withdraw the money from the RRSP without having tax withheld, it is a T3012 that must be certified by CRA and then taken to RRSP holder for withdrawal. If you have further tax questions I encourage you to visit http://www.hrbtaxtalk.ca where the Tax Advisory at H&R Block Canada answers questions for free.

Alex March 15, 2011 at 7:35 pm

Hi, last year I opened a Savings Account with a bank and transferred ALL MY money into this account. This year upon calling my bank to make my annual RRSP contribution they are telling me that I have Already made my 2010 contribution. It turns out the bank opened up the wrong type of account last year. They opened up a RRSP Savings account, and not a normal Savings account as I had assumed. As a result I have made an over-contribution of 3.5x my 2010 max RRSP limit.

I was wondering what are my options to proceed and which option I should take? This entire thing is a mis-understanding. (Unfortunately my Bank will not Reverse this mistake as they are calling it a ‘customer error’. They are telling me to take it up with the CRA).

Cleo Hamel March 17, 2011 at 10:35 am

Alex – “That’s an unfortunate situation. The first thing you need to do (if you haven’t already) is to withdraw the excess amount to avoid the excess penalty of 1% a month. You also need to complete a T1-OVP Individual Tax Return for RRSP Excess Contributions before March 30 and submit it to the Canada Revenue Agency for review. Do not put this off. The CRA does review RRSP contribution limits so they will notice you were over. You need to convince the CRA that this was an honest mistake and if possible, include any documents or proof you might have. The place to start would be a phone call to CRA 1-800-959-8281. Good luck.

Faiz April 7, 2011 at 5:35 pm

I am a new immigrant in Canada and arrived here in January of 2010. I started my RRSP contribution in September of 2010. I was not aware of the rule that in my first year, my RRSP room is only $2,000 (which my tax consultant told me today) and I contributed one lumpsum payments on December 22 which throw me off the limit.

I wouldn’t think about a reason as to why I have to pay pentaly on over contribution and most they should do is to disallow over contribution as I never got tax refund or any kind of benefit.

I am submitting my request to withdraw this exces contribution and I think this is an honest mistake. What are the chances that I have to pay no penalty?

Pam April 13, 2011 at 3:26 pm

You are allowed to contribute up to $2000 without any penalties during your lifetime, so unless you contributed more than $2000 above your contribution limit, then you have nothing to worry about. If you did contribute more than that, I would recommend that you contact CRA.

Zoya April 27, 2012 at 5:18 pm

Hello,
I have submitted my tax documents and in the notice of assessment I found that I have over-contribution about 1100$. I asked a financial ad visor but unfortunate she couldn’t help me. I contributed on Feb 2012.
1. Do you think it is better to withdraw it and if yes, how should I do it.
2. I If I didn’t withdraw it , how and when should I pay the 1% tax to the government. I am confused since I don’t know I had to pay the tax before March 2012 or I have to pay it before March 2013.
I would be so thankful if you could help me.
Regards

Pam April 29, 2012 at 1:44 pm

You are allowed to overcontribute to your RRSP by $2,000 without penalty. If
the $1,100 is your entire overcontribution, you do not need to worry. Since
the money was deposited in February 2012, you should have earned income in
2012 that generated more RRSP contribution room you can use for next year.
If you do not have earned income in 2012 and the $1,100 is an
overcontribution more than the allowable $2,000, you will want to withdraw
the money immediately and complete a T1-OVP form.

Zoya May 1, 2012 at 8:50 am

Hello Pam,

Thanks a lot for your efficient and informative reply.

I am working now and have income in 2012. Therefore, it seems that I can carry froward the extra amount that I have contributed for the next year.
The only question that remain is that, when and how should I pay the 1% tax to the government and should I fill T1-OVP form now?

Best regards,
Zoya

Pam May 1, 2012 at 8:18 pm

You shouldn’t need to worry about that as per the previous reply. Because you are working this year you will continue to accumulate more RRSP contribution room, and besides, even if you weren’t working this year, the government has grace on up to $2000 of overcontribution in your lifetime, so you won’t need to worry about filling out a form or paying the 1% penalty.

Sankalp July 30, 2012 at 8:13 pm

Hi,
My wife immigrated to Canada in July 2011. She was jobless in 2011 and her RRSP contribution for 2012 is $0. She got a job in January 2011 and opened Individual RSP and contributed $5150. She was not aware of RSP rules. Kindly advise what should she do under this circumstances.

Pam July 31, 2012 at 2:09 pm

Hi Sankalp,

You have to complete a T1-OVP Individual Tax Return for RRSP Excess Contributions to calculate the amount of the overcontribution and penalty tax. This form must be filed, and the tax remitted, within 90 days from the end of the year

TC January 2, 2013 at 8:16 pm

I received a retiring allowance upon my loss of employment in January 2012 and instructed my former employer to directly transfer the qualified amount (i.e., $2000 per year earned prior to 1989) to my RRSP. When I received my 2011 Tax Assessment, CRA indicated that I have less 2012 RRSP deduction limit than the amount I had transferred. My over contribution is over $2000. I have no income in 2012 other than the retiring allowance to generate any more RRSP room. Can I claim an offset refund on the excess amount in my 2012 return or is an over contribution from a retiring allowance treated differently?

Appreciate your response.

Regards,
TC

Pam January 14, 2013 at 12:35 pm

TC – here’s the answer I got from a tax specialist:

No, the retiring allowance does not affect your RRSP deduction limit.
However, part of the retiring allowance should have been eligible for
transfer to your RRSP. The eligible part is $2,000 for each year or part-year
of service before 1996 in which you were employed by the employer who paid
her the retiring allowance. You could also transfer an additional $1,500
for each year or part-year of service before 1989 in which no pension or
DPSP benefit from employer contributions either vested at the time of
payment or were previously paid to you.
It is unclear why the CRA disallowed the transfer. Maybe the amount eligible
for transfer was not identified properly in Box 66 of your T4 slip. Or maybe
you did not properly identify it as a transfer on your Schedule 7. Either
way, you should try to get that rectified first.

Elarmie March 3, 2013 at 1:46 am

I am doing my sister’s income tax return for the first time for year 2012. Her 2011 RRSP deduction as per CRA’s assessment is $2,000.00. As per my calculation, the 18% of her earned income for the year 2012 is $6,000.00. I erroneously added $6,000.00 (2012) and $2,000.00 (2011 as per CRA assessment and advised her to buy RRSP in the amount of $6,000.00. Please advise on how can I correct this matter to avoid the 1% penalty. Thank you.

Elarmie March 3, 2013 at 1:48 am

Sorry, the amount of $2,000.00 is RRSP deduction limit for 2011 and not RRSP deduction.

Pam March 3, 2013 at 9:10 am

Note this section of the post:

If you discover that you have overcontributed, you should try and withdraw the excess amount as soon as possible. Although you must include the withdrawal in income on your tax return, you can claim an offsetting deduction as long as you do so within the required time frame and the following conditions are met:
You reasonably expected to be able to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
You did not make the contribution with the intention of later withdrawing it and deducting the offsetting amount.

You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.

Without a T3012A, you can still withdraw the excess amount but the financial institution will withhold tax. Use Form T746 when you file your tax return to claim the offsetting deduction and a credit for the tax withheld.

Jan April 8, 2013 at 9:54 pm

I misplaced by 2011 NOA reporting my 2012 RSP deduction room. Without thinking about it, I continued to contribute per pay cheq to a total of $9500… only to now find I only had $3439 in room. I have completed the T1-OVP and understand I will need to pay $677 in penalties… however it is now April 8th (just sat down to do my taxes on the weekend) and so I am currently withdrawing the $5100 extra (as per A-B on my NOA + $2000 overcontribution room) but…
1) I missed the 90 day deadline so what is the penalty now?
2) I am completing the $5100 w/d in 2013 (as of tomorrow 4-9-2013) for the 2012 overcontribution — this income will go on my 2013 taxes, not 2012… and as I havent hit the “submit” button on my 2012 e-file, do I still claim all $9500 in 2012 RSP receipts as a deduction?
3) anything else I should know?

Tried to call Rev Canada — not much help :(

Pam April 10, 2013 at 4:47 pm

The late-filing penalty for the T1-OVP (which was due March 31) is the same as for T1 returns. So if she files before the end of April it will be 5%.

You must report all the RRSP contributions you made in 2012 on your 2012 tax return, but will only be able to deduct up to your RRSP contribution limit. You will report the withdrawal on your 2013 return and claim an offsetting deduction for refund of excess contributions.

shyang April 15, 2013 at 10:01 pm

Hi Pam,

I thought I was being smart by putting some money in my RRSP as a student, but because I had no income, as a result, I have about 3k of unused contribution as of 2012 as stated on my notice of assessment.

On my notice of assessment for 2012 (i started work in 2011), my RRSP deduction limit was 12k

However, for 2012 year, I put in 13k of RRSP contribution (11k lump sum in December but I forgot I had a group plan which resulted in 2 k of RSP). Now, I know that the excess contribution is the difference between my rrsp deduction limit for 2012 and the (unused contribution + current contribution for the year+2k buffer).

Therefore, does that mean I am 4 k over? Or 2 k over given the 2k buffer? Or the 12k deduction limit already accounts for my unused contribution?

I guess I am just wondering if my max contribution amount for this year would have only been 10k given that i had 2k of unused contribution carried over from prior years.

At this point, do you think I should still take out the excess?

Thanks a lot

Pam April 15, 2013 at 10:12 pm

Hi Shyang,

From what you’ve told me, it looks like you made a total of $4000 in excess of your contribution limit. But, because the CRA allows for a total of $2000 over contribution, you really only need to concern yourself with $2000. I would contact CRA to confirm your numbers, though, so you don’t go to all the trouble of filling out forms, etc. until you know the correct amount. Good luck!

Ashley June 9, 2013 at 10:17 pm

Hi Shyang,
I feel like I have a redundant question here, but I finished immigrating in 2011 and started contributing to an RRSP in 2012. I had $0 income in 2011 and contributed $2693 in 2012 to RRSP. So from what I gather above, I have contributed in excess $693 and will pay a 1% fee on that amount? In my Notice of Assessment, they said my Allowable RRSP contribution for 2012 is $903. So, does that mean I contributed an excess of $1790? And is that within the limit? Should i fill out a T1-OVP form for the $693?

Thank you x 2!

Pam June 11, 2013 at 7:45 am

There is a grace overcontribution amount of $2000, so if you are under that amount there will be no penalties.

Travis March 17, 2014 at 9:30 pm

Hi,
I just completed my tax return for 2013 and to my surprise found out I’ve over contributed to my RRSP. I’ve had my contributions set up automatically through the bank to pay out weekly for over 10 years and have never maxed my deduction limit. I guess i always assumed they’d refund up to the limit and anything above that would just be extra cash in the bank. I didn’t receive the CRA’s do’s and dont’s manual for RRSPs when I opened the account. So here I am! My deduction limit for 2013 was $3,920, My contribution receipts add up to $5200 and from what I am reading here, I’m safe with being $1,280 over. What I’d like to know is how can i clean the slate? Can I not just claim the $3,920 now, stop my auto contributions and claim the rest $1,280 next year as long as it remains within the 2014 deduction limit? If so, would I claim the whole $5,200 on this years taxes or just the $3,920 I am using? I would rather not fill out forms, make withdrawals, or beg for forgiveness but then again, Im not comfortable standing close to the edge either!

thnx!

Pam March 19, 2014 at 8:06 pm

Hi Travis,

You are within the grace amount of overcontributing under $2000 which is good, here are the two options you have as outlined in the above article:

You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.

Without a T3012A, you can still withdraw the excess amount but the financial institution will withhold tax. Use Form T746 when you file your tax return to claim the offsetting deduction and a credit for the tax withheld.

Anne April 30, 2014 at 10:46 pm

Hi,
I made automatic RRSP contributions for many years now and found that with my company pension, I over contributed by $8,600 (excluding the $2000 grace). I had my bank fill out the T3012a form 5 weeks ago. I called CRA today and they advised that it takes 8 weeks to process. Tax returns are due in 5 days! What is my best option? 1) File my tax retun as is now and then send in an amendment when I get the T3012a back? 2) wait until i get the T3012a back and file my return late? 3) Just withdraw the funds now with the withholding tax?

Thanks

Pam May 6, 2014 at 5:24 pm

Sorry I didn’t read this until just now, otherwise I would have responded much sooner. I hope you went ahead and filed your tax return on time. There is always a way to fix things later if need be.

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