# Deduction Room vs Deduction Limit in T1-OVP (RRSP Contribution)



## flowerdealer (Jan 29, 2018)

I'm filling out the T1-OVP-S for 2017, as I over contributed. There is a section that I do not understand though. It says:
"Negative RRSP deduction room at the end of 2016"
In my 2016 assessment I have, as an example, the following:

RRSP/PRPP deduction limit for 2017: 20,000
Minus: Unused RRSP/PRPP contributions previously reported and available to deduct for 2017 20,500
Available contribution room for 2017: (500)

So I have a negative $500 contribution room, but I do have a positive 'deduction limit' of 20,000. So I don't understand the terminology of 'deduction room' in this context. Does it refer to the deduction limit, or the contribution room? I also don't understand how this information is relevant, as the overcontributions are being listed in the chart anyway, and being subtracted from my deduction limit. 

Thanks for any help or insights!


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## GoldStone (Mar 6, 2011)

Have you read the instructions above that line?



> 1. Go to canada.ca/myaccount or call 1-800-959-8281 to find out what your 2017 RRSP, PRPP deduction limit would be if you did not have a 2017 *net past-service pension adjustment (PSPA)*. If you have negative unused RRSP deduction room at the end of 2016 (from your 2016 notice of assessment, notice of reassessment, or a T1028, Your RRSP/PRPP information for 2017), do the following calculation:


Have you ever received Past Service Pension Adjustment (PSPA)? If not, you can skip the calculation.

https://www.canada.ca/en/revenue-ag...spa/past-service-pension-adjustment-pspa.html

P.S. I am not a tax accountant or a tax lawyer. My advice is worth what you paid for it. That said, I do have experience filing my own T1-OVP-S. I skipped that calculation because I had never been subject to PSPA.


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## flowerdealer (Jan 29, 2018)

No I haven't received a PSPA. I hadn't interpreted the text as only being applicable in that scenario (the text seems to imply that you fill it if you haven't received a PSPA). Thanks for your help, I do think that you are right and it makes sense skipping this calculation.


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## GoldStone (Mar 6, 2011)

Sorry, please ignore what I wrote.

I took another look at my forms. It's very possible that I skipped the calculation because I didn't have a negative RRSP deduction room on the NOA (and NOT because I'd never received a PSPA). I don't really remember my reasoning for skipping the calculation.

T1-OVP-S is a tax form from hell.


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## flowerdealer (Jan 29, 2018)

GoldStone said:


> Sorry, please ignore what I wrote.
> 
> I took another look at my forms. It's very possible that I skipped the calculation because I didn't have a negative RRSP deduction room on the NOA (and NOT because I'd never received a PSPA). I don't really remember my reasoning for skipping the calculation.
> 
> T1-OVP-S is a tax form from hell.


Haha yeah, just not sure what the language means. I've heard of deduction limit, and contribution room, but not of deduction room... So not sure how to interpret it, and no one is answering for a few days now. Hopefully someone else knows. Thanks though.


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## GoldStone (Mar 6, 2011)

I googled "Negative RRSP deduction room". This is one of the few hits:

http://docs.otpp.com/HB_section9.pdf

Take a look at Page 10 of the PDF. It shows CRA formula to calculate "RRSP Deduction Room".

A footnote says:

* Overall limit minus PA cannot result in a negative number; in other words, a PA, on its own, cannot result in negative RRSP deduction room.

Looking back at the formula, it seems to me that the only other way to end up with a negative room is to have "NET PSPA reported in current year".

P.S. Same disclaimer applies: I'm not an accountant nor a tax lawyer.

P.P.S. By the time you are done with this form, you will understand it better than 99% of front-line CRA employees.


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## flowerdealer (Jan 29, 2018)

Thanks again, I've found a few links now that seem to suggest that you can go into negative deduction room, precisely through PSPA, so I'm guessing that interpretation is correct. I'll submit it as is and hopefully it will be fine, if not I guess they will assess it and I'll play the difference.


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## Eclectic12 (Oct 20, 2010)

How much was over contributed in 2017?

If it was the $2000 over contribution allowance - $500 or $1500 then I don't believe there would be tax charged. No 1% tax charged means the T1-OVP can be skipped. https://www.canada.ca/en/revenue-ag...-you-over-your-rrsp-prpp-deduction-limit.html

The link also lists "contributed to a qualifying group plan" as an exception that would avoid the tax so that is something else to consider. 


Cheers


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## Eclectic12 (Oct 20, 2010)

flowerdealer said:


> ... In my 2016 assessment I have, as an example, the following:
> 
> RRSP/PRPP deduction limit for 2017: 20,000
> Minus: Unused RRSP/PRPP contributions previously reported and available to deduct for 2017 20,500
> ...


Note that as I understand it, the 2016 NOA section should have started with what the 2015 amount then subtracted or added factors such as pension adjustment (PA) or 18% of 2016 earned income) to end up with the 2017 deduction limit. 

This number includes both contributions reported but not deducted *and* the contribution room. If like myself, there were no reported/not deducted amounts - then the deduction limit and contribution limit would be the same thing. 


The negative contribution room is warning you to avoid RRSP contributions (or keep them under $1.5K to match the $2K over contribution allotment) as something have used up more contribution room than has been earned.

The positive deduction limit likely is telling you that 2016 earned income resulted in some RRSP contribution room being granted. Unfortunately, not enough to take care of all contributions that have been made.




flowerdealer said:


> ... I also don't understand how this information is relevant ...


I think that it was first relevant when the 2016 NOA was received - roughly in May or so of 2017. At that point there is the opportunity to avoid an over contribution happening during 2017, without a need to fill out a T1-OVP form. For example, if the over contribution was from automatic RRSP contributions - one could stop the automatic contributions in time to stay within the contribution limit.


Cheers


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## flowerdealer (Jan 29, 2018)

I did over contribute in 2017 over the 2000 limit. I did this knowingly because it was easier to just pay the penalty, than do the withdrawals and request the deactivation of my companies RRSP contribution. So at some point in the year I do need to pay the penalty. I still don't understand the distinction between contribution room and deduction room.


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## Eclectic12 (Oct 20, 2010)

Is the company contributing to a group RRSP plan on your behalf? If so, it might qualify for the exception. 
If it is your personal RRSP instead of a group plan, then likely you are out of luck.


I haven't been over the limit so my comments are limited to the NOA with it's section on RRSP deduction limit and contribution room.
Maybe if I write the formula out, it will be clearer.

Deduction Limit = contributions recorded but not deducted + available RRSP contribution room.

The key here is that deduction limit is tell one the maximum one can deduct. Having RRSP contribution room earned and/or carried from a previous year gives the potential for a deduction so it is included in the deduction limit.

It would be less confusing IMO to have stuck to "available contribution room" and "previously reported and available to deduct RRSP contributions" as separate items without combining them into the grand total that is the "deduction limit". 

For whatever reason, that's the way CRA sets up the NOA.


Cheers


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