# RRSP Over Contribution



## Eggshatch (Jun 19, 2015)

Hi there

I would appreciate advise or experience from any one as my heart hasn't stopped thumbing since we received the letters.

Last Friday the CRA wrote to us to informing us that we had not declared an RRSP contribution on our tax return back in 2009. The RRSP contribution was in the amount of $12,000. The self assessment tax return was done by our accountant (they didn't notice the error even though they were sent the statements) and signed by my husband (and of course he didn't notice the error either). I know it's no defense, but it was just a simple/stupid mistake!

So as of now, for the last 6 years, without realizing it, we have overpaid by $12,000 and now have to complete T1-OVP. We have been told that we will be charged 1% for every month of the over contribution. So that means 1% over a period of 72 months. What I don't understand is why didn't the CRA tell us earlier? Why did it take them 6 years to highlight this error?

is there anyone out there who has experienced anything similar? Is there any good new here? We are now worried that will loose everything.


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## Eclectic12 (Oct 20, 2010)

No idea why it would take that long for CRA to notice ... when they made a keying error that re-assessed returns from five or six years back to be an RRSP over-contribution for me, the re-assessment letter that said I owed thousands in penalties plus interest went out with a week or two of the error being made.


That said ... your description does not sound right.

Where one missed claiming an RRSP contribution and overpaid income tax ... assuming the proper amount of tax was paid at the time (albeit $12K higher income worth of tax), there should be no penalty to pay. It is just an interest free loan to the gov't.


Where one claimed a $12k RRSP contribution against income where the $12K was an RRSP over-contribution ... then it's a double whammy. The invalid RRSP deduction will mean income taxes are owing + interest for the additional income tax that should have been paid at the time. On top of that, the RRSP will be charged 1% x 72 months, which will keep running until the excess amount is removed. Now one likely has been earning RRSP contribution room over the six years so that the full $12k over-contribution might have been whittled down (unless one has also been adding fresh RRSP contributions).


There's no good news but it's also not the end of the world as you know it. 

At the full amount, on a $12K over-contribution with no reductions to the over-contribution amount, that's 1% x 72 x $12K = $8640. A big chunk but not everything.

Then too, there is a $2K over-contribution allowance so I'd want to verify if the actual over-contribution $14K, where the $2K over-contribution allowance has reduced it or whether it's really a $10K over-contribution.
http://wheredoesallmymoneygo.com/the-rrsp-overcontribution-limit-think-twice-before-using-it/


I'd also dig through your records to calculate what's happened then and what's happened in the years between for granting new RRSP contribution room plus any RRSP contributions made. This would help verify what needs to be removed now and show that the penalty numbers are too high.

For example, if in 2009 one confirms that $12K RRSP over-contribution number then in 2010 $14K of RRSP contribution room was earned where $10K was contributed ... then for 2010, overall the $12K over contribution has dropped from $12K down to $8K. This would make my earlier estimate of $8640 a high estimate as one year's change has reduced the over-contribution by 30+% without a withdrawal being done.


I'd also want to verify if the $12K RRSP contribution was deducted from income and if so, what's happening on the income tax front.

http://www.kwbllp.com/rrsp-contributions-limits-over-contribution-rules/


I've also look carefully at CRA's criteria for waiving penalties to make sure there wasn't something going on in your life at the time that could be grounds to ask for the penalties to be reduced/waived.
http://www.cra-arc.gc.ca/gncy/cmplntsdspts/cnclwvpnlty/menu-eng.html


Finally ... the key lesson is that no one cares for your money like you do. So it pays to track for yourself how close you are getting to the limit. This way you can proactively avoid issues and if the financial institution or CRA make a mistake, you can simplify the process of disputing it because you are aware of the details.


Cheers


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## Guban (Jul 5, 2011)

Sorry to hear about your RRSP troubles. Have you talked to your accountant?

Just because it was not declared, doesn't mean that you are necessarily in overcontribution territory. Have you been contributing and deducting up to the maximum allowed amount? Hopefully not. If you have, you should be aware that you have $2,000 extra room that you can put in without being penalized too.

When did you contribute in 2009? This may be a factor in counting of the months for penalty purposes.

Otherwise, it might be wise to get the money out ASAP to avoid another 1% penalty. Don't forget to complete T3012A when completing your 2015 tax return.


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## agent99 (Sep 11, 2013)

I would get the total story 100% straight. Then if you are liable for back interest, contact CRA and clearly explain the error as you see it and the reasons. In past, on two occasions we had a a tax error. But after some discussion, the penalty was waived. Those were different issues, but it did show some flexibility on part of CRA.


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## Eggshatch (Jun 19, 2015)

Thank you for taking time to provide such a detailed response. 

The $12K was not claimed against income tax. At least the double whammy will not apply. 

Most years contributions were made to the maximum. It will be possible to make only small adjustments that could reduce the penalties.

The over contribution allowance was not 'used' until 2014. If my understanding is correct the $2K should be applied to the 2009 $12K contribution between 2009 and 2014. As you highlight this should reduce the penalties.

I checked the link on exceptional circumstances. I doubt loss of a sister the previous year and sleepless nights due to a new arrival would weigh to much with the CRA, but one can only hope.

Your point on doing ones own detailed checks is well made and painfully true.

Thanks again




Eclectic12 said:


> No idea why it would take that long for CRA to notice ... when they made a keying error that re-assessed returns from five or six years back to be an RRSP over-contribution for me, the re-assessment letter that said I owed thousands in penalties plus interest went out with a week or two of the error being made.
> 
> 
> That said ... your description does not sound right.
> ...


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## Eggshatch (Jun 19, 2015)

Thank you for responding to my dilemma. Still waiting to hear back from the accountant. We feel they are partly responsible here. We contributed at the beginning of year. We need lots more information and unfortunately the CRA letters don't give it to you.


Guban said:


> Sorry to hear about your RRSP troubles. Have you talked to your accountant?
> 
> Just because it was not declared, doesn't mean that you are necessarily in overcontribution territory. Have you been contributing and deducting up to the maximum allowed amount? Hopefully not. If you have, you should be aware that you have $2,000 extra room that you can put in without being penalized too.
> 
> ...


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## Eggshatch (Jun 19, 2015)

Thank you also for responding. Our letters have stated that no penalties will be waivered. And they haven't even spoken to us! Do you really think they are open to negotiation?


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## My Own Advisor (Sep 24, 2012)

Yes, they are open to negotiation since a) what took them so long to figure things out from 2009?? and b) depending upon what your personal records show they might not have an accurate story. CRA has been and can be, wrong.


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## 0xCC (Jan 5, 2012)

Also, dig up your Notice Of Assessment for all the tax years involved. They should show both unused contributions and unclaimed contributions. If you were basing your maximum RRSP contributions on the Notice Of Assessment numbers it seems to me that a very strong argument could be made that you were contributing based on bad numbers from the CRA itself. This may help to convince them to adjust the penalties.


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## Eclectic12 (Oct 20, 2010)

Eggshatch said:


> ... The $12K was not claimed against income tax. At least the double whammy will not apply.


That is good news ... it's only the RRSP over contribution penalty to worry about.




Eggshatch said:


> ... Most years contributions were made to the maximum. It will be possible to make only small adjustments that could reduce the penalties.


What adjustments do you see making?

Where one has deducted the RRSP contribution room, an adjustment for RRSP contributions deducted means increasing income then a tax bill and possibly interest charges. I don't see how that helps as I suspect the tax bill owing may outweight the 1% saved.

In my mind, tracking RRSP contribution room earned versus deducted is about ensuring one pays no more or less than what is owed.


I haven't spent time modelling it so maybe there is something I'm missing.





Eggshatch said:


> ...The over contribution allowance was not 'used' until 2014. If my understanding is correct the $2K should be applied to the 2009 $12K contribution between 2009 and 2014. As you highlight this should reduce the penalties.


As I understand it ... the over-contribution limit *was* used in 2009. The idea of checking it similar to the above, to make sure one pays the correct amount.




Eggshatch said:


> ... Your point on doing ones own detailed checks is well made and painfully true.


It is more for those who are reading this and possibly thinking "why bother, the gov't tracks all of this anyway".


Cheers


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## Guban (Jul 5, 2011)

The adjustments that I can possibly see to reduce the 1% per month penalty would be to take a careful look at when your other contributions were made to see exactly when and how much you were over beyond the allowed $2k.

For example, if in 2010, the RRSP contribution wasn't made until March, then the 2009 contribution wouldn't be an overcontribution for January and February because it could count against the new amount earned for 2010. Go back through your records and match the dates and dollar amounts carefully, and you may be able to reduce the penalty.

I can't see that the time delay is a fault of CRA. It is not their job to pick up these things quickly, just to get to them eventually. RRSP contributions seems to be a weak point in their record keeping. They know exactly how many T slips were issued, so if you misplace them, they can tell you right away. But, for whatever reason, the RRSP contribution amounts are not disclosed so promptly.

I can't see how the accountant made the error too. Was the 2009 RRSP contribution disclosed? If so, why was it not deducted? If was disclosed and not deducted, why was it not carried forward? Something doesn't sound right at this end too.


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## Xoron (Jun 22, 2010)

0xCC said:


> Also, dig up your Notice Of Assessment for all the tax years involved. They should show both unused contributions and unclaimed contributions. If you were basing your maximum RRSP contributions on the Notice Of Assessment numbers it seems to me that a very strong argument could be made that you were contributing based on bad numbers from the CRA itself. This may help to convince them to adjust the penalties.


0xCC is correct. Your NOA will have all the relevant info on your RRSP contributions and room. This is the first place to check.

Second: Fire your accountant.


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