Refiling taxes -- RRSP ERROR
I was speaking with a colleague and from a house sale she did a MONSTER RRSP contribution of around 70K in 2015. On her 2015 taxes she claimed the ENTIRE 70K RRSP deduction even though her income was only 70K. This is obviously very stupid b/c she effectively claimed RRSP deduction on a portion of her income that she didn't even pay taxes on. OUCH.
She can simply refile her 2015 taxes and fix things up right? That's not an issue is it?
Depends on what you mean by "refile her 2015 taxes".
CRA explicitly says:
Do not file another return for that year.
If she has access through My Account, she can use that to identify the parts she wants to change (I am assuming she has her 2015 NOA already).
If not, she can mail in a filled out T1-ADJ form that outlines the changes she wants to make.
Thanks - it's such a major screw up I've just told her to get an accountant to do it for her. I told her exactly what to do last year (and what she did certainly wasn't it). i think the peace of mind (for me too) of her getting an accountant is likely the best idea. Thanks.
Maybe that is best, but it is just a matter of using the T1-ADJ for 2015 to provide CRA with a new number on Lines 14 and 16 on Schedule 7 http://www.cra-arc.gc.ca/E/pbg/tf/50...000-s7-16e.pdf and thus line 208 in the main tax return. Note that since she will be taking a smaller deduction, she will actually have more tax owing and CRA will send a Notice of Re-assessment with the amount owing AND interest due since April 30, 2015. After all, she has had some of the government's money as of that date for which she will owe interest. Note: I am assuming she can actually reverse out this data for a tax year that has long gone.
Originally Posted by none
Note it will mess up her Schedule 7 in her 2016 tax return since the Carry Forward numbers wil be different too. On second thoughts, best an accountant lead her through it.
It depends on what she meant by "claimed".
If she didn't have enough RRSP room, CRA would probably already have been in touch with her about penalties for over contributions.
Assuming she had sufficient accumulated RRSP room, she was obligated to "report" the $70K contribution.
She should not have deducted more than necessary to reduce her income tax to zero. The remaining contribution would be carried forward for use in future years.
It is possible that CRA detected the error if she deducted the whole amount unnecessarily, and carried part of it forward automatically. She, and possibly her accountant, would have to study her NOA's to figure this out.
I would argue she should not deduct any contribution that brings her under $45k, if her regular income is 70k, so use around 25k a year in deduction.
Originally Posted by OhGreatGuru
She could spread it out over 2-3 years to bring her income around 45k+ each year, instead of 70k... which will save her way more taxes.
(depending on the time value of money and what she will do with the tax refund).
Last edited by cashinstinct; 2017-04-20 at 11:35 PM.
This is EXACTLY what I told her to do. She's been a bit of a challenge in the sense I tell her exactly what to do and she tends to flub it up. She even was going to say - forget it - I screwed up and it's DONE. NOOO!!!! That's basically accepting a 10,000 mistake. Just hire a god damn accountant already.
Originally Posted by cashinstinct
Thanks for the help everyone!
Sounds like a second source saying the same thing *might* help. If the accountant does it, likely the chance it is done as suggested probably increase.
One point to note: does she still have some money from the 2015 refund she received?
Originally Posted by none
She will need money to pay her 2015 taxes + interest (edit: no penalty, since it's not an error, it's an adjustment).
She will save money on her 2016 tax return, but accountant will need to calculate difference between 2015 amount due Vs 2016 refund... might impact her decision.
Last edited by cashinstinct; 2017-04-21 at 03:39 PM.
I can see interest from the date the change is filed but *penalties*??
I doubt it.
It is a good point though that there likely will be some money owing.