What Happens if I Contribute More Than My Deduction Limit?

by Tax Guy - Burlington Accountant on January 22, 2011 Print This Post Print This Post

There is a limit on how much you can contribute to your RRSP!

Your annual RRSP contribution limit is reported on your Notice of Assessment or Notice of Reassessment. If you exceed your annual RRSP contribution limit, you are subject to a penalty tax of 1% per month of the amount of excess contributions to your own and your spouses’ RRSP’s.

Administratively, the CRA will not assess the penalty tax unless the over contribution is more than $2,000, which gives many Canadians a little bit of leeway if they make a mistake.

Also note that, if you have unused RRSP contributions on your Notice of Assessment and the amount of the unused RRSP contributions is greater than your RRSP deduction limit then you may be subject to the penalty tax.

The penalty tax on RRSP over contributions should be less than your average tax rate.  Balance the impact of withdrawing the excess contributions over apply future year’s RRSP deduction limits to eliminate the over contribution.

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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