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RRSP Over-Contributions

Generally, RRSP contribution room is based on 18% of a taxpayer’s prior year’s earned income up to a maximum ($29,210 for 2022) less the current year pension adjustment plus unused contribution room carried forward from prior years. Contributions in excess of this amount may be subject to a tax of 1% per month the RRSP contribution room is exceeded. This may seem like a lot of room; however, it is easy to exceed this amount. This usually happens in situations where the taxpayer has a registered pension plan with their employer and does not account for the pension adjustment (the value of contributions to a taxpayer’s pension by the taxpayer and employer for the year) when making their own RRSP contributions. Another situation commonly encountered is when a taxpayer does not consider the automatic contributions they make when making a lump sum contribution.



Canada Revenue Agency (CRA) also provides a $2,000 buffer to account for situations where there are small errors in calculating the RRSP contribution room. Often times the taxpayer does not realize there is an over-contribution until they file their income tax return and may already be subject to the tax of 1% per month the RRSP contribution room is exceeded. The good news is that if you find yourself in this situation, there are ways to mitigate this tax.


The first option is to do nothing. If you have earned income in the current year, your RRSP contribution room will increase on January 1st of the subsequent year and that additional contribution room may be sufficient to offset the over-contribution. You will still need to pay the 1% tax by filing form T1-OVP, Individual Tax Return for RRSP, PRPP and SPP Excess Contributions no later than 90 days after the calendar year to avoid late filing penalties of 5% of the balance owing plus 1% of your balance owing for each month that your tax return is late to a maximum of 12 months. This option may make sense if you over-contributed later in the calendar year or the amount is not significant.


The other option is to withdraw the overcontribution. The withdrawal will be included in your income in the year of withdrawal. Provided certain conditions are met and you make the withdrawal during the year in which the over-contribution was made, the year in which you receive an assessment for the year of contribution or in the year following each of these years, you will be entitled to an offsetting deduction and need to complete form T746 with your tax return. Depending on the amount of the withdrawal, it may be subject to withholding tax. This tax will be either credited against taxes payable or refunded to you when you file your personal income tax return. If you would prefer not to have the taxes withheld, you can complete form T3012A—Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP, or SPP Contributions from your RRSP and send to CRA for approval. Once approved by CRA, you will need to provide a copy of the approved form to the RRSP issuer so they do not withhold taxes on the withdrawal. Depending on the amount of withholdings, this may or may not be worthwhile. Another option is to limit your withdrawals to $5,000 at a time to limit the amount of withholding taxes. Unless you notice the over-contribution immediately, you will still need to complete form T1-OVP.


It may also be worthwhile to ask CRA to waive the 1% per month tax on RRSP over-contributions. This can be done using form RC4288—Request for Taxpayer Relief—Cancel or Waive Penalties or Interest. CRA is not obligated to approve your request, however, in situations where the over-contribution arose due to reasonable error and the over-contribution has been withdrawn, CRA may approve your request.


It is important to review the options available to you based on your particular circumstances.


For more information, please contact info@gytdcpa.com or 1 844-GYTD-CPA



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