# Overcontributed to rrsp in 2014



## oldmanrockband (Dec 27, 2016)

Foe one reason or another I accidentally overcontributed $30,000 to my RRSP in 2014. What are my options as CRA are threatening to make me pay a penalty on it?


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## Eclectic12 (Oct 20, 2010)

Ouch!

There is the $2K leeway amount so if your available limit meant $30K was an over-contribution then the penalty will be applied to $28K. The painful part is that the penalty starts with the date of the over-contribution and is for 1% of the over-contribution per month (i.e. 1% of $28K per month).

Have you been earning RRSP contribution room where you have not made RRSP contributions from 2015 onwards?
If so, then the over contribution amount as well as the penalty may be dropping year by year. For example, if the 2014 earned income added $5K of RRSP contribution room that you did not use then in 2015, the $28K over-contribution would be reduced to $23K.

Now that you are aware of it, one way to stop the penalty is to withdraw the over-contribution amount ... though the withdrawn amount will be taxed.
http://business.financialpost.com/news/did-you-over-contribute


It seems that if you can make an argument to show that error is "reasonable" and that you are taking steps to deal with it ASAP, you can apply to have the penalty canceled or waived. https://www.canada.ca/en/revenue-ag...-you-over-your-rrsp-prpp-deduction-limit.html


With so much time having passed since the large over-contribution ... cancelling the penalty does not seem likely.


Cheers


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## OptsyEagle (Nov 29, 2009)

WOW that is a big problem. You need to figure out when exactly you overcontributed to the RRSP (what month) and by how much. 2 things to consider. First, you are allowed a $2,000 lifetime over-contribution allowance. So subtract that amount from your numbers. Secondly, on January 1st of each year you would probably be allocated more contribution room. Subtract that from the amounts. Of course if you made new contributions you will need to add that back to the over-contribution amount.

You will need to know "how much during each month" you were in an over-contribution situation. Unfortuneately the next step is the most annoying. You will need to calculate 1% of the amount you were over-contributed, for each month, and that will be the penalty tax that CRA will render. Obviously if the number stays at $30,000, we are talking $300 per month since 2014.

I suspect it will be lower but still probably very significant. On that there is probably nothing you can do but write a cheque. Maybe someone else has some better news for you. Good luck.


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## Ponderling (Mar 1, 2013)

There is a form called t1-ovp that you need to fill in for each year you were over contributed. It shows how rrsp deduction room is 'earned' month by month. It also shows how monthly payroll pension contributions, payroll defined contribution plans, etc eat what is available month by month as to lump sum deductions.


Then you tally the overcontributions on the 12 month of the year, and multiply that number by 1%. Yes, it is a mess. 

I am in the same net. I did a share transfer in 2015, and then forgot about it and poured in cash also. 

So CRA audits me, finds they made a mistake omitting keying in my contributions in 2008, not deducted until 2009.

I deducted it in 2009, but CRA never registered that a+B=c, so now I have a number of years with some overage. I am working on remitting revised returns for the years since 2009. 

To get rid of the worst of the mess, I made a lump sum withdrawl. Yes you pay withholding tax, and a trustee fee in my case of $50. I transferred the funds to my non registered account and re-invested them there. 

If you have made contributions in the current year, and not yet claimed the tax deduction there is a multi part form many prties sign off on so you can withdraw to not have the tax withheld.

If you are paying penalty tax by the month, just bite the bullet and make the withdrawl.
The withdrawl is taxed as marginal income this year, and you will likely need the withheld amount to cover the incremental increase in your income taxes.

Sorry I am not a ray of sunshine on this matter. It can get messy. You likely need to do T1-OVP for 2015, and 2016. maybe 2014 if you carried contributions over into 2015


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## gardner (Feb 13, 2014)

Ponderling said:


> The withdrawl is taxed as marginal income this year


If it is to correct an overcontribution, then I don't think it is. You would never have gotten a deduction for the amount of the excess contribution so it would be after-tax money already. You likely can't avoid the withholding amount, but that would ultimately go towards the penalties anyway.


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## oldmanrockband (Dec 27, 2016)

Thanks all, I pulled out 30k yesterday and put it in my TFSA which has room. Bank withheld 9k. I've been retired for 10 yrs so there has been no increase in my contribution room, which is the main reason this happened. I assumed I had built enough room, but found out too late that pension income doesn't qualify as earned income, which is needed to build room. I'll talk to a tax specialist early in the new year for further steps.


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## Jimmy (May 19, 2017)

Do you have a Homebuyers repayment plan HRP? Probably not the case but if you do you can use the overcontribution there as a repayment to the plan & pay no tax.

I did that when I over contributed by accident too.


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## OptsyEagle (Nov 29, 2009)

Wow, is double tax the only way out of that situation? You do know that you already paid tax on your money before you put the after tax amount of $30,000 into the RRSP, of which you were not able to deduct. Now you are paying tax again when you take it out and I am not sure you will avoid the 1% per month penalty by doing this. It might stop the clock on it but that was certainly an expensive way to do that.

You probably should have talked to the tax specialist before you made such a move or at least looked into it in more detail. I do not know how this problem gets unwound, since I never did it, but I sure would have wanted to know all my options before I paid tax twice on the same dollar plus penalties. That might pretty much hand over the entire $30,000 to the government, depending on your various tax brackets.


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## OptsyEagle (Nov 29, 2009)

I did a little googling since it occurred to me that you are still technically in an over-contribution state, since RRSP withdrawals do not have a direct effect on contribution room. The form T1-OVP, mentioned above, may fix that, I am not sure. I suspect you should have used the following form to make the withdrawal of $30,000.

https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/E/pbg/tf/t3012a/t3012a-16e.pdf

This would have prevented the double taxation I alluded to above. It also would almost certainly trigger a review by CRA pertaining to the over-contribution but they already know about it so at worst it would just speed up their interest in the matter. They would then want the T1-OVP to figure out the penalty tax. 

I doubt there is much you can do about it now. A withdrawal is a withdrawal, but hopefully it can somehow stop the clock on the over-contribution, because as I said above, an RRSP withdrawal has no direct impact on contributions. Maybe the T1-OVP will link them together but until something is filed, you are still in an over-contribution state.

I wish I had better news for you.


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## Eclectic12 (Oct 20, 2010)

Lots of articles say that withdrawing the RRSP over-contribution amount so that it is at or under $2K stops the 1% over-contribution penalty so I am not clear on where the idea that an RRSP withdrawal leaves one in an over-contribution state is coming from.

Sure, withdrawals don't affect contribution room but the point is the $$ are not supposed to be there as there is no contribution room available.

For what it's worth - being over the TFSA limit then withdrawing the excess funds also stops the TFSA 1% per month penalty.


As well, according to the link that follows:


> Complete your client’s annual return
> *If your client paid withholding tax:* [on the RRSP withdrawal to deal with an RRSP over-contribution]
> a. Fill out Form T746: Calculating Your Deduction for Refund of Unused RRSP Contributions.


http://www.advisor.ca/tax/tax-news/how-to-fix-rrsp-overcontributions-171057

There seems to be a mechanism to deal with withholding taxes despite missing the form to skip the withholding tax on the over-contribution withdrawal (i.e. 3012A Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP, or SPP Contributions from your RRSP).


Cheers


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## OptsyEagle (Nov 29, 2009)

I was just saying that if you simply withdrew money from the RRSP, and do nothing else ,you would still be in an over-contribution level. It would have no effect on your contributions.

Perhaps your form is better then the one I linked, I don't know, but quite a few times CRA wants their forms approved BEFORE the withdrawal is made. The one I linked is designed so that no withholding tax is paid on the withdrawal. That is the money one wants to save. It can be a lot.

I never read all the articles but he definitely should. I would hope they have a way to reconcile everything.


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## Eclectic12 (Oct 20, 2010)

Being in an over-contribution situation starts the 1% penalty where articles say withdrawing the over-contributed amount stops the 1% penalty.

Since the criteria for the penalty is over-contributing, I don't follow how removing the excess amount can stop the penalty being charged *without* affecting being in an over-contribution situation. 

https://www.collinsbarrow.com/en/cbn/publications/rrsp-excess-contributions
https://boomerandecho.com/help-i-discovered-im-over-contributing-to-my-rrsp/


Cheers


*PS*

I have only ever been over the foreign content limit ... the principal seems similar as shifting $$ out of the foreign content to Canadian content within a week of it happening/being notified of it avoided the penalty.

As for CRA wanting the forms pre-approved - it looks like T3012A needs pre-approval. This makes sense as CRA has to let the FI know that skipping the withholding tax is okay with them.

RC4288 is an after-the-fact situation. Supporting documentation is listed as proof one has withdrawn the excess amount so I doubt it needs pre-approval.

T1-OVP has to be filed within 90 days of the affected tax year (ex. RRSP over-contribution happened in 2016 then T1-OVP is due April 30th, 2017 plus 90 days). It does not look like pre-approval is needed.

T746 is filed with the affected tax year's tax return so it looks like no pre-approval is needed.


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## GoldStone (Mar 6, 2011)

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