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.
Related Articles
- How Much Can I Contribute To My RRSP?
- Do I Have To Deduct My RRSP Contribution This Year or Can I Deduct It In The Future?
- RRSP Over Contribution & Decline In Market Value
- Unused Contribution Room or Unused Deduction Room
Print This Post
{ 20 comments }
Next Comments →
What I am amazed at is that nowhere on the notice of assessment does it tell us as taxpayers what to do, to address the over contribution, other than to report it on Schedule 7 of the following year. It also says the excess contributions “may be subject to tax”. There is no mention of having to complete and file additional returns to CRA. I just got dinged with taxes, interest and penalties of about $2K for 2003, 2004 and 2005. Due to a lack of relevant information on the assessment notice from CRA.
Is ‘excess RRSP contribution” as mentioned in the Notice of Assessment” the same as ‘excess contribution? Thanks, Tax Guy.
Hi Terry,
I assume the phrase is located in the RRSP section of the NOA and so yes they are referring to the same thing.
Is ‘unused RRSp contribution/ as per NOA the same as ‘excess contribution? Prior to 1996, the allowed overcontributiion was $ 8,000. i have ‘unused contribution of $7000 + (was on oversight) since 1995. Does it mean 1% interest per month will be applied until I file T1 OVP? what other forms should I file? many thanks
Unused contribution room is the amount you can contribute to an RRSP. Excess contribution is the amount by which you have exceeded your contribution limits. You pay the penalty tax on the excess contributions.
Administratively the CRA only applied the penalty tax if you have contributed more than $2,000.
I contributed to RRSP in 1991, 1993 and 1994 whcih resulted to “undeducted RRSP contribution” per taxpreparer (or unused per CRA). The contributions were not reported in the tax returns. In 1994 and 1995, I filed sch 7 Unused RRSP Contr”. The amount now is $ 5500 as per CRA. No employment income in 2009 and 2010. what to do- withdraw or do nothing? If i withdraw, can I use T746 and/or use T1 OVP? Thanks.. Pls notify me once you replied.
Terry,
The T1-OVP is for over-contributions. You have deductions carried forward you have not used. You can either continue to carry these forward and use them when you have taxable income (you don’t need employment income).
Great service you offer! Keep up the good work.
I was a non resident for 2008, 2009 with no taxable income. In 2007 (the last year I filed) I maxed out my contributions and have zero RRSP room. I returned to Canada in 2010 and started working. My company made contributions to a RRSP group policy in my name which totaled $3054 by year end. Will I be penalized for this? Or does the fact that it’s a group policy change things? Should I withdraw the money or do I have any other options?
Take a look at How Much Can I Contribute To My RRSP?. Based on what you have said, you have zero RRSP room for 2010.
Understood. So regardless of who makes the contribution, my company or me, if the RRSP is in my name it counts as contribution and I will be penalized. So I need to withdraw the RRSP ASAP?
I tried reading the Guide T-4040 but could not find anything useful.
NO you do NOT need to withdraw based on what you’ve said. You have NOT over contributed. You will NOT be subject to the penalty tax.
You have deductions that you have not used.
You can use them anytime.
Sorry to be a pain but I’m a bit confused. I had no remaining deductions in 2007, was non-resident in 2008 + 2009 so I can’t contribute anything in 2010. Yet, my company did contribute on my behalf.
Mike
Disregard what I said above. I mixed my responses up. Yes you might withdraw but you will get the contribution room as of January 1st.
I have over contributing on my RRSP by about 11,000. Do I have to report all RRSP in the year they were purchased or can I keep the receipts and report them on future years so I don;t get penalized. If I do have to report them for this year how do I go about not getting a huge penaalty
If you over contributed, you are subject to the penalty. The deduction is different and you can’t deduct an over contribution.
Great service, thank you!
I overcontributed to RRSP for 2011 by about $3000 due to prior years pension adjustment. As this overcontribution amount is greater that $2000, I will have to pay penalties. How does the penalty calculation work? Will the penalty simply be $3000 (the total excess contribution) x 1%per month x 12months even though the overcontribution started later in the latter part of 2011?
None of the RRSP tax receipts include time stamp of RRSP contribution to help determine the month when the overcontribution started…
The penalty is 1% per month on the amount over $2,000. Your plan administrator reports your balances to the CRA monthly.
Thank you, Tax Guy.
Given that my spouse’s RRSP still has contribution room, is there a way that I could apply my 2011 RRSP overcontribution to my spouse’s RRSP in first 60 days of 2012 ? (I would still have to pay the penalty, but would reduce my spouse’s income tax owing for 2011.)
Or can I avoid the penalty if I apply the excess to the Home Buyers Plan repayment?
Next Comments →
Comments on this entry are closed.