# Question on RRSP contribution limit vs deduction



## robert99a (May 23, 2009)

What is the difference between RRSP contribution limit vs deduction limit?

Every year, I have a limit of about $5000. I contribute that and deduct it and get a small tax refund.

Now, knowing that I get about $5000 new contribution room per year, could I contribute $25,000 right now and only deduct $5000 every year for the next five years? If I do this, will CRA give me a large penalty? I suppose I would have to complete Schedule 7 to avoid this?

Thanks


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## OptsyEagle (Nov 29, 2009)

The deduction limit is the amount that is calculated for you from your notice of assessment. Your contribution limit is your deduction limit minus contributions already made, but not yet deducted.

No to your strategy In your example you would be overcontributed by $20,000. Since you are allowed $2,000 without penalty, the remaining $18,000 would generate a 1% per month penatly until it was removed or new contribution room is generated.


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## robert99a (May 23, 2009)

Thanks. I did not expect an answer so fast.

Part of the reason I asked is following this thread :

http://canadianmoneyforum.com/showthread.php/5864-RRSP-contributions-in-first-60-days

The original poster over contributed to RRSP by $2300 and was asking that to do. One of the answers (reply #7) was to leave it as is and just report the contribution in Schedule 7 to deduct it at a later time. This answer lead me to believe that I could over contribute all I want as long as I do not attempt to deduct more than the limit that CRA gave me on my last notice of assessment. 

Did I misunderstand something?


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## stardancer (Apr 26, 2009)

There is a big difference between overcontributing by $2,300 and by $18,000. The other poster would only be penalized at 1%/month on $300, but you would be penalized 1%/month on $18,000 until the excess was withdrawn or used up. Chances are the former would be used up the next year, but your excess would not be. Further, CRA 'might' overlook $300, but certainly not $18,000. Best not to raise red flags.


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## MoneyGal (Apr 24, 2009)

I wrote that original reply #7. Read Schedule 7 carefully -- you can carry forward unused RRSP contributions, BUT you can only contribute an amount which is lesser than or equal to your available contribution room. 

If you have $5000 of available contribution room, you can contribute $5000. But you don't have to claim / deduct the contribution this year - you can carry forward the contribution and take the deduction against a future year. However, if you have $5000 of contribution room, you cannot, in fact, contribute $25000 (or any amount more than $5000) to your RRSP. 

I hope that is clear!


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## cardhu (May 26, 2009)

robert99a said:


> Did I misunderstand something?


Yeah, but don’t feel too bad, so did most of the responders in that thread … the OP was never overcontributed in the first place … the discussion took off on a tangent about taking appropriate steps to reverse an over-contribution, but since there was no overcontribution in the first place, there was nothing to reverse. 

The contribution that the OP thought might have put him over his 2010 limit was made on January 10, 2011 … 2010 was closed by that time, and a contribution made in one year cannot result in a retroactive overcontribution for the prior year … new contribution room for 2011, arising from his 2010 earned income, would have become effective at approximately 1 second after midnight, New Years Eve, so he wouldn't have been overcontributed for 2011 either (yes, I am assuming from the context of his other posts that he would have had some earned income).

Schedule 7 is a bit of a red herring in the context of that thread … if OP had been overcontributed, there's nothing you can put in Sched 7 that would prevent a penalty, and since he wasn’t overcontributed, there's nothing you can put in Sched 7 that would cause a penalty ... in other words, Sched 7 would have no influence on the outcome, either way.


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## robert99a (May 23, 2009)

So starting January 1, you can assume that new contribution room from income earned the previous year has been added to your account.

Does that mean that if in 2011, I earned income that gave me a $5000 contribution room and that in 2012, I once again earned income that gave me a $5000 contribution room, I can right now put $10,000 in my RRSP even though my last notice of assessment that I received last spring only says $5000 since it was based on my 2011 income and my 2012 income hasn't been declared to CRA yet? Assuming of course that I have not contributed to any RRSP at all in all of 2012. 

Or, I can put $10,000 in my RRSP and deduct $5000 and use Schedule 7 to delay the other $5000 to a future year?


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## Eclectic12 (Oct 20, 2010)

robert99a said:


> So starting January 1, you can assume that new contribution room from income earned the previous year has been added to your account...


You can ... though there are a lot of factors that can change the number so unless you are positive nothing has changed, I'd leave some buffer.




robert99a said:


> Does that mean that if in 2011, I earned income that gave me a $5000 contribution room and that in 2012, I once again earned income that gave me a $5000 contribution room, I can right now put $10,000 in my RRSP even though my last notice of assessment that I received last spring only says $5000 since it was based on my 2011 income and my 2012 income hasn't been declared to CRA yet? Assuming of course that I have not contributed to any RRSP at all in all of 2012...


The $10K RRSP contribution only works if there was another $5K of unused. The 2012 won't be available until 2013.


Cheers


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## robert99a (May 23, 2009)

Eclectic12 said:


> The $10K RRSP contribution only works if there was another $5K of unused. The 2012 won't be available until 2013.


But we are in 2013 now. And cardhu says that the contribution room becomes available a few seconds after midnight on January 1.


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## Eclectic12 (Oct 20, 2010)

robert99a said:


> But we are in 2013 now. And cardhu says that the contribution room becomes available a few seconds after midnight on January 1.


*sigh* ... and I thought I'd adjusted to 2013 yet am still thinking of it as _next year_.

....... < slaps self in the head > :rolleyes2:

Then yes - the $10K is fine.

Though as mentioned - the 2012 tax return hasn't been filed yet so you will want to be relatively sure that nothing that will affect the RRSP contribution room calculation significantly has changed.


Sorrry for the confusion.


Cheers


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## OptsyEagle (Nov 29, 2009)

robert99a said:


> But we are in 2013 now. And cardhu says that the contribution room becomes available a few seconds after midnight on January 1.


It is for this reason that the government allows a $2,000 over-contribution without penalty. They had no major desire to allow people to over-contribute to their RRSPs but recognized for those who wish to do their own calculation of contribution room on January 1st, they would allow for small errors, without penalty.

The over-contribution allowance use to be $8,000 but once everyone started over-contributing and therefore, left themselves without any buffer, the government ratcheted it down to $2,000. 

If a taxpayer acts like a child, they will be treated like a child. Just take the bat away, I am sure the Finance Minister said. lol.


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