RRSP Over Contribution & Decline In Market Value

by Tax Guy - Burlington Accountant on October 10, 2008 Print This Post Print This Post

A recent visitor to The Canadian tax Resource Blog found himself in a difficult situation when he over contributed to his RRSP and then his investments fell in value.

Question: I mistakenly contributed to an RRSP when I had no earned income last year and no RRSP contribution room.  I received a notice from the Canada Revenue Agency indicating that I must pay a penalty of 1% per month due in the amount that I had originally over contributed. I had invested the contribution in some mutual funds and with the markets the way they are right now the value of my investments have since fallen quite substantially and I’m not sure what to do.

There are two issues at play here:

  • Over contributions to an RRSP
  • Performance of the investments inside the RRSP

It is important to understand the difference and connection.

RRSPs & Contributions

In order to contribute to an RRSP you must have earned income in the prior year and the amount you can contribute is the lesser of 18% of your prior year’s earned income or the yearly maximum. The maximum contribution you can make is listed on your last Notice of Assessment from the CRA. If you had no RRSP contribution room, you cannot contribute to an RRSP. The contributions you do make are considered over contributions which are subject to a penalty tax of 1% per month for the amount of the over contribution.

How To Fix An RRSP Over Contribution

RRSP contributions (aka deposits) are deducted from your taxable income for the year. Investments purchased inside the RRSP are not taxed as income. If you have over contributed to an RRSP you have 2 choices: (a) Continue to pay the penalty tax until you have accumulated enough earned income and contribution room to account for the over contribution, or (b) withdraw the excess amount.

If The Investments Fall In Value

If you have over contributed to your RRSP you are subject to the penalty tax of 1% per month. If the value of your RRSP is less than the amount of your over contribution you will not be able to withdraw enough to offset the excess amount.

S. 204.1 – The Saving Grace

The CRA has the ability to waive the penalty tax under 204.1(4) of the Income Tax Act if the excess contribution arose as the consequence of a reasonable error or reasonable steps are being taken to eliminate the excess. The CRA will probably not waive the penalty tax due to reasonable error under 204.1(4)(a). However, you may find relief under 204.1(4)(b) if you withdraw the excess amount.

The $2,000 Over Contribution Limit

Administratively the CRA permits over contributions to an RRSP of $2,000.  If a contribution were made of say $5,000 and the value of the investments had fallen to $3,000.  Withdrawing the $3,000 would effectively eliminate the penalty tax. Although there would still be an over contribution of $2,000 and no funds in the RRSP.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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Thomas March 2, 2010 at 11:44 pm

In March 2009 I contributed to RSP an amount of $ 5,000 while my limit was $ 5,900. In 3 months time from the deposit date, I withdrew the amount to pay towards my mortgage. In 2010 on the deadline date to make payment for RSP i.e. 1-Mar-10 I made a mistake by depositing another $ 2,500. It did not strike me that this amount ($ 2,500) I deposited was for year 2008. I was under the impression that I was going to make the payment for year 2010. As a result I deposited for year 2008 an amount of $ 7,500 thus exceeding my limit of $ 5,900. When I went to the bank where I deposited the amount of $ 2,500, the officer told me that I cannot withdraw the amount. However, he told me that I can use this amount ($ 2,500) towards my next year’s (2009) contribution. He told me that when I file my tax returns for 2009, I have to inform the accountant about it. Can someone tell me about your views on this issue.

Tax Guy March 3, 2010 at 4:39 pm

@Thomas: The deposit made March 1, 2010 may be claimed as a contribution in 2009 or in 2010. You make the designation in schedule 7 of your tax return. I assume the $5,900 was your 2009 contribution limit.

If you elect to contribute in 2009, your over contribution will be $5,900 less the contribution of $5,000, less the $2,500 or $1,600. There will be no penalty tax as the CRA does not assess the penalty if the over contribution at any given time is under $2,000.

If you elect instead to take the contribution in 2010, I assume you will have more than $14,000 of earned income to cover the contribution.

Kevin April 10, 2010 at 10:07 pm

I will have a similar situation for Tax year 2009, when I file the return before 30th April 2010.

Basically, Column A of Notice of Assessment was $6809 and column B was $1885.
I did not quite understand what Column B was until someone pointed to me that I over contributed. It looks like the $1885 was what I overcontributed last year and hence it got carried forward. What I also now learnt is that Column A includes the minimum payment of $1333 under HBP.

I contributed $6800 to the spousal account and another $300 to my own account plus $1333 towards, bringing a total contribute of $10,318. So now on Schedule 7, line 14 my amount is $2176, which is basically $176 over the yearly max over contribution of $2000.

Is this such a big deal that I need to correct by filling T3012 or just hope CRA won’t care for such a small amount. I will definitely have more than enough room to use this $2176 over contribution.

Also if penalty is charged would it be on $176 @ the rate of 1% per month.

Tax Guy April 12, 2010 at 9:10 am

Hi Kevin,

The over contribution maximum is $2,000 at any given time as opposed to annual.

The CRA will charge you a 1% penalty on the over contribution which would amount to $21 over the course of 12 months.

You use the T3012 to have your RRSP provider to authorize the withdrawal of the over contribution. If you do not complete the form and withdraw the over contribution the penalty will apply until you do withdraw the excess or you have new contribution room.

Assuming you have earned income and generate RRSP contribution room in 2010, the penalty should stop in January 2011.

mara April 18, 2010 at 12:37 am

I had the same problem like your ‘visitor.’ I mistakenly contributed to an RRSP last 2008–I don’t have a room and no income the prior year. Luckily(or not), it earned 20 percent for 1.5year.
The problem, I didn’t include it when I filed for my 2008 income tax.
So come filing for 2009 income tax, I had to do something abt it. I was advised to do a ‘re-edjustment’ (there’s a re-adjustment form i saw at CRA website). Did I do the right thing? Or I will be penalized?
And just in case, how are they going to charge the penalty–from the initial amt I’ve contributed or from the initial+earned interest?
(I’ve been living and working here in Canada for only two yearsand few months. I know I should’ve done my assignment before contributing 🙁 )

Tax Guy April 18, 2010 at 7:21 am

Chances are that you will have to pay the penalty tax on the contribution over $2,000. The penalty will end once you accumulated enough contribution room.

Therefore withdraw what you can.

Dan July 1, 2010 at 11:05 am

My fathers notice of assessment indicates he has over contributed. It states 5765 in Box B and 1790 in box A. I take it that next year he will use the 1790 as a deduction and this will leave him at 3975. With the 2000 allowable he will be 1975 over. Does he have to file the T1-OVP or can he just redeem 1975$ out of his RSP and pay the taxes? He is retired now and will have no further income.

Tax Guy July 3, 2010 at 9:22 am

Box A is the RRSP limit available and Box B is the contributions made but not deducted. If B > A then he is in an over contribution. He will need to generate $12,000 of earned income in the year to eliminate the over contribution. However, he will be subject to the penalty tax.

I’d suggest withdrawing the excess using he form. Your RRSP provider will be able to help you.

Brian October 9, 2010 at 11:18 am

I made an overcontribution in 2005 which amounted to $700. I retired then and have not had any earned income since that time. The overcontribution is under $2000 so CRA has not deducted any interest but does remind me every year that I do have excess contributions.

How do I deal with this?

Tax Guy October 11, 2010 at 2:37 pm

If you have contribution room, use it for the over contribution. If not you could withdraw it.

Brian October 12, 2010 at 8:18 pm

I have no contribution room. If I withdraw the overcontribution, will there be any tax or other penalty since the overcontribution is under $2000? You say I “could” withdraw it, what happens if I don’t? I will be converting my RRSP to a RRIF soon.

Tax Guy October 13, 2010 at 12:27 pm

You would complete a T3012A and T1-OVP and withdraw the excess tax free. However, you don’t have to withdraw the $700 and it does not attract the penalty tax.

Diane December 7, 2010 at 10:13 am

Can anyone tell me where I can find info re 204.1(4)(b) tax relief.

Thank you.

Tax Guy December 8, 2010 at 1:15 pm

You would withdraw the excess using form T1-OVP and then contact the CRA and request a waiver under 204.1.

Howie January 2, 2011 at 7:41 pm

Re: 2010 RRSP Deduction Limit Statement
Box (A)= $3317
Box (B)= $3749
What is the maximum I can contribute to my 2010 tax return?


Tax Guy January 4, 2011 at 8:56 am


Line (A) on your Notice of Assessment is your deduction limit and is also your contribution limit. So, $3317 is the maximum contribution.

If you contributed to an RRSP in past years but did not claim a deduction, you will have an amount on line (B), which you do. If the amount on line (B) is more than the amount on line (A), which it is, you are in an over contribution position.

The overcontributions is $3317 minus $3749 or $430.

What this means is that you should not contribute to an RRSP for 2010, but you can take a tax deduction of up to $3317 for 2010. If you have earned income in 2010, you’ll be able to deduct the remaining $430 next year.

I hope this helps!

Raj February 21, 2011 at 10:08 am

Hi, I’m in the process of filling out the tax return for 2010 and notice that I would have around $3300 of unused RRSP contribution to carry forward. If I withdraw the $3300 before March 1, 2011 do you know if I still have to fill out the T1-OVP form? Thanks.

Tax Guy February 21, 2011 at 4:39 pm

The amount on line (a) is the maximum RRSP contribution you can make. The amount on line (b) is an amount you didn’t claim in past years. If b>a then you may be subject to the penalty tax.

chris March 9, 2011 at 9:16 pm

Issue: Contributed maximally to RRSPs in 2009 year + in Jan 2010 so I could withdraw most of RRSPs using Home Buyer’s Plan. Bought a home in April 2010. Did not realize my 2010 contributions would exceed 2010 RRSP deduction limit.

RRSP deduction limit 2010: $2815 (A)
Unused contributions available for 2010: $6840 (B)

(B-A) Difference is: $4025 (if CRA allows $2000 over-contribution forgiveness.. my penalty will be $243 at 12 months…)

What are my options to avoid penalty? Can I designate all $4025 to HBP repayment for 2010 tax year?

Please advise. Thank you!

Tax Guy March 10, 2011 at 8:10 am

Given the over contribution was last year, is the issue not moot? You would have generated additional contribution room in 2010 that takes effect in 2011. You may be able to file an amendment and claim the January 2010 contribution in 2010.

chris March 10, 2011 at 7:19 pm

Sorry, I am not sure I follow. All I know is my RRSP contribution in 2010 exceeds my RRSP deduction limit for 2010.. I think I will have to withdraw some existing RRSPs and claim it as income..and pay penalty 1%. Pls correct me if I’m wrong.

Joel March 15, 2011 at 8:23 pm

Hi Tax guy,
I (mistakenly) contributed 18000 (16000 by december 31st 2010 and 2000 at the end of February 2011) because I thought I had 18000 to contribute (based on my 2010 income >100K). Today, I realized that my contribution limit was only 11225. However, I withdrew 3002.00 for the 1st time home buyers plan. Based on the above conversations, I am thinking that my adjusted limit is about 14225 which means I’ll have to withdraw about 1775 to not over contribute (since I can claim the 2000$ lump sum deposit next year because it was made in Feb 2011, right)? Should I still call the CRA to ask to have the 1% penalty waived?

Thanks for your help (sorry if the question is all over the place)

Tax Guy March 17, 2011 at 8:57 am

Your 2010 limit was $11,225 and you contributed $18,000. Your over contribution was $6,775 for 2010. Since you made the $18,000 contribution in December 2010, you will be subject to the penalty tax for one month only. The over contribution is $6,775 of which $4,775 would be subject to the penalty tax.

As of January 2010, your over contribution would be eliminated. Your room available for 2011, assuming you made $100,000 in 2010 would be $18,000 less $2,000 contributed in Feb 2011 less $6,775 or $9,225.

The HBP withdrawal is irrelevant.

Rita Chang March 17, 2011 at 10:58 am

i mistakenly report the RRSP contribution $50 more than the amount on the RRSP receipt & i filed my return already. what should i do? the reason for the different amount is that my RRSP contribution is a bi-weekly auto transfer. i checked my bank account & saw 5 transactions of $50 each (in the first 60 days in 2011) so i reported $250 without waiting for the receipt to come. the receipt came in the mail this morning & the amount is only $200.

thanks for your help!

Myriam January 16, 2012 at 6:50 pm

I contributed 3,997.99 in 2011. My CRA NOA says limit for 2011 is 3,072

i will not be using my 2012 jan to feb contributions of $300.00 what can i do so not to pay taxes what can I do with the over the contribution limit? thanks.

Tax Guy January 17, 2012 at 8:28 am

For 2012, your RRSP limit will increase by 18% of your 2011 earned income which may be enough to wipe out your RRSP over contribution.

Philip B March 5, 2012 at 8:29 pm

In approximately April 2011 I mistakenly contributed to my RRSP $27,000 when my available capacity was estimated to be only $18,000. Will I have to pay tax on the over contribution or can I just not contribute in 2012?

Tax Guy March 6, 2012 at 9:11 am

You are liable for the penalty tax for each month your contributions exceeded the maximum by more than 2%. Assuming your 2011 RRSP limit was $18,000, your penalty tax would be 1% of $7,000. The total bill is $630.00.

Assuming you had earned income in excess of $40,000 in 2011, the penalty tax stops in 2012. This means that for 2012 you need to reduce your RRSP contributions by $9,000 (to bring you under the $2,000 lee-way).

Ravi January 18, 2013 at 11:45 am

Hi Tax Guy,

I find that there has been an over-contribution of $5,500 to my RSP account b’cos of the employee deductions.

How can I avoid the penalty? Is it possible to withdraw $5,500 from my Self Directed RSP account? What are the implications and formalities if I do this?


Tax Guy - Burlington Accountant January 18, 2013 at 11:48 am

Hi Ravi,
Contact the financial institution that holds your RRSP and tell them about the over contribution. They will have you sign some forms and the you will be able to withdraw the excess contribution.

LUCIA March 8, 2013 at 3:27 pm


On my 2011 assessment, line “A”, my RRSP deduction limit is $28944, and by mistake I contributed $29,123.70 in 2012 making it $179.70 over contribution. What can I do or should I do anything about it? I am retired since November 2012.

Tax Guy - Burlington Accountant March 9, 2013 at 9:07 am

Assuming you still had employment income in 2012, the over contribution should be eliminated as of January 1, 2013. Since the amount is under $2,000, there would be no penalty tax.

You may be just fine leaving it as is.

Fred March 25, 2013 at 6:39 am

In Feb of 2012 I made an over contribution based on a miscalculation on my part well in excess of $2000. When I got my first Notice of Assessment in May it showed that I had room so I left it. But when I got another Notice of Assessment in Nov. I no longer had room hence a couple of month later I withdrew the excess. Will I have to pay a 1% penalty going back to Feb when I bought the RRSSP? And what form do I fill ? – sincere thanks

Tax Guy - Burlington Accountant March 25, 2013 at 9:22 am

Difficult to answer without knowing the amount of the over contribution, the amount of RRSP room you will have in 2013 and whether you withdrew the excess using the T3014. Other than that I might say possibly and you should compelte form T1-OVP and figure out the penalty tax.

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