# RRSP Overcontribution - T1-OVP Sample



## WarrenC (Jun 23, 2009)

I made a big mistake and overcontributed to my RRSPs in 2016 by about $7300. Given the $2000 limit, I'm looking at having to pay the penalty on a ~5200 overcontribution. Essentially I have been catching up on unused room over the last 5-6 years and overshot it in 2016. Silly me didn't realize my 2016 income doesn't count towards 2016 RRSP deductions. At any rate, I've figured I need to fill out a T1-OVP and potentially beg for forgiveness of the penalty.

I'm familiar with taxation and finance, but T1-OVP is making me pull my hair out. What an insane form... can anybody provide some guidance, or perhaps a sample filled out? I'm not even sure where to start. If I look at "note 1 on page 4" I actually have to calculate how many years back to show my unused room? I've never maxed out my RRSP limit until this year, so this is all ~20 years of my working life?!

Thanks for any help/advice in advance.


----------



## nobleea (Oct 11, 2013)

I'm pretty sure 2016 income counts toward 2016 RRSP deductions. Rarely do people hit the max. You just have to take an educated guess at what your income is/was in 2016 to estimate contribution room. It's one of the reasons why you can make contributions for the first 2 months of 2017. Because by then, you know what your 2016 income was.

If you had maxed out your contributions in 2015 for example, you wouldn't be able to participate in an RRSP match program through work in 2016 if RRSP contribution room was only based on previous year income.


----------



## WarrenC (Jun 23, 2009)

nobleea said:


> I'm pretty sure 2016 income counts toward 2016 RRSP deductions. Rarely do people hit the max. You just have to take an educated guess at what your income is/was in 2016 to estimate contribution room. It's one of the reasons why you can make contributions for the first 2 months of 2017. Because by then, you know what your 2016 income was.
> 
> If you had maxed out your contributions in 2015 for example, you wouldn't be able to participate in an RRSP match program through work in 2016 if RRSP contribution room was only based on previous year income.


Hmmm maybe something funny is going on with Ufile. The way the tax form seems to work using rough numbers is:

2016 Limit = 16k
2016 RRSP contribution = $24k
= 8k carry forward amount (implying penalties on $6k)

Net income calculations then spit out a 2017 number like $20k based on 2016 income, but you can't use 2016 RRSP contributions against it.


----------



## Eclectic12 (Oct 20, 2010)

nobleea said:


> I'm pretty sure 2016 income counts toward 2016 RRSP deductions.


The calculations used past year's income to determine this year's limit, where the closest comment by an article I have seen is that the 2018 room can be used in Jan 2018, before the tax return NOA spits out the limit number.




nobleea said:


> You just have to take an educated guess at what your income is/was in 2016 to estimate contribution room ...


It's actually "earned income" x 18% with a bunch of other potential factors. If the factors don't come into play, then the estimate should be okay. If they do, missing then could mean thinking there's $20K of RRSP contribution room being granted where the real number is $5K.

No idea where the OP fits for the RRSP factors so it might be worth comparing the estimate against what was granted.




nobleea said:


> ... If you had maxed out your contributions in 2015 for example, you wouldn't be able to participate in an RRSP match program through work in 2016 if RRSP contribution room was only based on previous year income.


You'll to explain this as I don't see a problem, unless the 2015 income based RRSP contribution room granted in 2016 is small.

You say the 2015 RRSP limit is used up ... but that's the *2014* earned income x 18% (with other factors) plus previous unused RRSP contribution room. There is no 2015 income amount in the formula.

Jan 2016, the numbers haven't been run yet to set the exact number but as I understand it, at least $600 will be added.


Cheers


----------



## WarrenC (Jun 23, 2009)

Eclectic12 said:


> The calculations used past year's income to determine this year's limit, where the closest comment by an article I have seen is that the 2018 room can be used in Jan 2018, before the tax return NOA spits out the limit number.
> 
> It's actually "earned income" x 18% with a bunch of other potential factors. If the factors don't come into play, then the estimate should be okay. If they do, missing then could mean thinking there's $20K of RRSP contribution room being granted where the real number is $5K.
> 
> ...


Ya thanks this makes more sense. I recently started a new job with a defined benefit pension, so that adjustment has been pushing my RRSP limit down and I just went overboard in 2016. I think I have figured out the T1-OVP as well. I don't see the reason why over-contribution is penalized to such a degree, but oh well.

The lesson here is contribute based on last year's NOA. The current year's income or lack thereof is meaningless for RRSP contribution limits.


----------



## Eclectic12 (Oct 20, 2010)

WarrenC said:


> Ya thanks this makes more sense. I recently started a new job with a defined benefit pension, so that adjustment has been pushing my RRSP limit down and I just went overboard in 2016.


I have had friends that used "gross income x 18%" run into similar problems when then didn't notice the DB pension generated a large pension adjustment (PA) that reduced the RRSP grant significantly.

That's where hearing their complaints then researching it helped me avoid issues as well as IMO better plan when to use the RRSP contribution room at higher income levels.


BTW ... if you do leave the company where you decide to leave the DB pension (make sure to evaluate it before deciding), there's what's called a pension adjustment reversal (PAR). It will grant back RRSP contribution room to reflect that the payout is no longer guaranteed.
http://www.milliondollarjourney.com/what-is-the-pension-adjustment-pa.htm

The link is good ... though this part is wrong:


> The formula assumes that every DB plan offers employees a generous 2% benefit. *This isn’t always the case, which is why the Pension Adjustment Reversal (PAR) was introduced.*


The PAR has nothing to do with whether the DB pension grants 2% a year or 1.58% or 1.25% ... it is about leaving the DB pension so that the benefit is no longer guaranteed.

The PAR granting back RRSP contribution room brings the RRSP contribution room back into line with the retirement benefit, had one been in a DC pension or using an RRSP for all of the funds.




WarrenC said:


> ... I don't see the reason why over-contribution is penalized to such a degree, but oh well.


That's easy ... if there wasn't a heft penalty, those with big $$$ would happily pay a smaller penalty for an overall benefit.


Cheers


*PS*

IMO this link does a better job of explaining the PA and PAR (though it does not use the formula plus includes some related stuff).
https://www.retirementadvisor.ca/retadv/apps/articles/primer6.jsp?learningMenu=primer


----------



## WarrenC (Jun 23, 2009)

Eclectic12 said:


> The PAR has nothing to do with whether the DB pension grants 2% a year or 1.58% or 1.25% ... it is about leaving the DB pension so that the benefit is no longer guaranteed.
> 
> The PAR granting back RRSP contribution room brings the RRSP contribution room back into line with the retirement benefit, had one been in a DC pension or using an RRSP for all of the funds.
> 
> That's easy ... if there wasn't a heft penalty, those with big $$$ would happily pay a smaller penalty for an overall benefit.


Thanks for the link. Not sure I will be here until retirement so these are all important things to know.


----------



## Eclectic12 (Oct 20, 2010)

^^^

It won't matter until you change jobs or are giving an opportunity to leave the DB pension. However, I prefer to read up on this stuff at my leisure so that there is no time crunch when the decision has to be made.

For example, as soon as I knew there was a good chance I'd be changing jobs, I dug into the details of the choices that would be offered as well as the implications.


Cheers


----------



## 0xCC (Jan 5, 2012)

I actually accidentally put our household into this situation for what I think is both 2016 and the 2017 tax year. I forgot that my wife made a contribution in April of 2016 and when doing the rough calculations for the 2016 tax year (without considering the April 2016 contribution) she made another contribution before March 1, 2017 that will probably impact 2017's tax year.

In my wife's case the April 2016 contribution exceeded her 2016 contribution room as noted on her 2015 NOA by roughly $3000. So after the $2k over-contribution limit the actual over-contribution is a little more than $1k and at 1%/month for the 9 months from April-December that should only mean a 9% penalty or around $90, not too bad.

For the contribution made last week, she will probably be in an over-contribution situation for 2017 because her pension adjustment uses up all but around $2k of her contribution room. She made a $6k contribution last week and $1k of that is already used up by the 2016 over-contribution. So she is going to have to withdraw that $6k contribution and then maybe beg for forgiveness or in the worst case pay a 1% penalty on that $6k so, $60 for that. However, if the $6k contribution could be considered as a contribution for the 2017 tax year then the 2017 over-contribution would only be on around $4k which would reduce the tax to around $40.

My questions are for the contribution made last week, is there anyway to not report that until the 2017 tax year besides just not claiming it for the 2016 tax year (and having it show up as unused contributions on the 2016 NOA)?

Second, it looks like the T1-OVP form on the CRA site is currently for contributions made up to December, 2015 (http://www.cra-arc.gc.ca/E/pbg/tf/t1-ovp-s/README.html), and it seems like we have until 90 days from the end of the calendar year to file a T1-OVP form before extra penalties apply. That 90 days is coming up at the end of March for the 2016 calendar year. So do we actually have another year to file that form or is the CRA just being slow in updating the current form?

EDIT: Looking at the form more closely it looks like it just starts with the December 2015 contribution limit and then does some calculations based on that. I think that the form currently available on the CRA website is valid for the 2016 tax year.


----------

