- 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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{ 6 comments… read them below or add one }
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!!
James – I think what you are looking for is the form to take a deduction for the withdrawn excess RRSP amount. If the RRSP over-contribution has been withdrawn and tax withheld, you would file a T746 form with the tax return for the year of the withdrawal and take a deduction on line 232.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.
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).
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.
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?
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.
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