- 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.
November 25, 2010
34 Comments
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James ā I think what you are looking for is the form to take a deduction for the withdrawn excess RRSP amount. If the RRSP over-contribution has been withdrawn and tax withheld, you would file a T746 form with the tax return for the year of the withdrawal and take a deduction on line 232.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 Iām 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 $2000 above your contribution limit, then you have nothing to worry about. If you did contribute more than that, I would recommend that you contact CRA.
Hello,
I have submitted my tax documents and in the notice of assessment I found that I have over-contribution about 1100$. 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
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.
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
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.
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.
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
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
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.
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.
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.
Sorry, the amount of $2,000.00 is RRSP deduction limit for 2011 and not RRSP deduction.
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 š
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.
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
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!
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!
There is a grace overcontribution amount of $2000, so if you are under that amount there will be no penalties.
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!
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.
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
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.
Hi Pam,
Can you give me reasonalble errors (examples) what I can say to CRA to vaiwe penalties?
Thanks
Please be more specific. What sort of penalties are you wanting CRA to waive?
Hi Pam
In November 2013, my daughter took out a RSP of $10300 from her regular savings, not income. For 2013 return, she had no tax to pay because of very low income (RRSP deduction limit for 2013-$ 6839) and the CRA indicated in their assessment that she had $ 10300 of unused RRSP/PRPP contributions for 2014 and a RRSP deduction limit of $6839 for 2014. She will not be decreasing her excess RRSP for her 2014 return. There has been no reaction from CRA. How can she get out of this RSP and into a regular savings plan without penalties or withholding taxes.Thanks
I would recommend contacting the Canada Revenue Agency just to be sure. From reading your two comments, it sounds like your daughter wouldn’t pay very much additional tax if she withdrew money from her RRSP. She would most likely still be subject to the withholding tax, but depending on her income for 2015, she may end up getting some of that withholding tax back.
Hi Pam
The 1% per month penalty that may be applied for excess contributions above the RRSP deduction limit allowed for 2014 as generally mentionned in the 2013 Assessment which included the RRSP/PRPP Deduction Limit Statement for 2014. My daughter has only reported this RSP in her 2013 tax return and CRA has not sent any notice specifically for this excess contribution.My daughter has presently overcontributed from November 2013 to the present with her purchase of a RSP mentionned above. The question is what procedure to follow to remove this investment($10300) from the RRSP category. Thank you for your patience.
Hi Pam,
Can you give me reasonalble errors (examples) what I can say to CRA to wave RRSP overcontribution penalties?
I withdrown overcontributed amount and paied full tax. For how many years do I need feel out T746 form?
Thanks
If you get a Excess RRSP contribution review letter. Respond to it the best you can and offer a continuity schedule if you have one. If CRA issues a Tax on RRSP Excess Contribution Section 152(7) Assessment mail Notice of Objection T400A within 90 days indicating the assessment does not make sense. Hopefully an CRA appeals officer will help you/accountant understand the numbers. If your accountant/you still does not understand the numbers you will have to electronically file to take it to tax court. Its free for assessments less than $50,000 and the fee is nominal for assessments over $50,000. You do not need a lawyer to go to tax court (just a good read of Section 204 crosschecking each section to the income tax act for relevancy). For me only 15% of Section 204 was reliant. The most understandable document you will receive “the Reply to Notice of Appeal.” From that document you can compare CRA’s records to yours and CRA’s math. I set up a spreadsheet that emulated CRA’s calculations and the clerical errors that fell out were astronomical (your accountant may have to do this for you). Today I finalized a settlement agreement, without a lawyer, through tax court that was a fraction of of the original assessments , saving around $25K?