Are you one of the many Canadians who have inadvertently
overcontributed to their Registered Retirement Savings Plans? If
so, you should be aware that excess RRSP contributions are subject
to a penalty tax of one per cent per month of the excess
What are RRSP excess contributions?
Generally, RRSP excess contributions result when unused RRSP
contributions made to the contributor's (or a spouse's or
common-law partner's) RRSP plan exceed the RRSP deduction room
plus $2,000 (the allowable overcontribution). Unused RRSP
contributions and RRSP deduction room can be found on the RRSP
Deduction Limit Statement (attached to the Notice of Assessment),
or can be obtained online through the CRA's My Account
How does the penalty tax work?
The one per cent per month penalty tax may apply to certain
excess contributions made in 1991 and later years that are left in
the plan. However, if unused contributions resulted from qualifying
mandatory group RRSP contributions, or from contributions made
before February 27, 1995, the tax may not be payable on all unused
The penalty tax applies for each month. Excess contributions
remain in an RRSP until the excess amount is reduced by new RRSP
deduction room. The CRA provides Form T1-OVP Individual Tax Return
for RRSP Excess Contributions to calculate the tax owing. The form
is due, along with payment of the penalty tax, no later than 90
days after the end of the year. Failure to file may result in
It is up to the taxpayer to self-assess the penalty tax on
excess contributions. However, if the CRA becomes aware of the
situation, it will send a request to file Form T1-OVP.
What do I do with my RRSP excess contributions?
Withdrawing excess contributions is not mandatory. You may carry
forward amounts until sufficient RRSP contribution room opens up.
This may be the desirable course of action when, for instance, you
have overcontributed near the end of the year and, as of January 1,
you will have new contribution room to reduce or eliminate the
excess contributions. However, the penalty tax will still apply for
the period of overcontribution.
It is prudent to withdraw the excess contributions as soon as
you become aware of the situation, in order to reduce continuing
penalties. RRSP withdrawals must be reported as income on your
personal income tax return in the year of withdrawal. However, you
may be able to claim a deduction equal to the amount withdrawn, if
you reasonably expected to be able to deduct the contributions and
you withdrew the unused RRSP contributions:
in the year you contributed them, or in the following year;
in the year you received a Notice of Assessment or
Reassessment, or in the following year.
The intent is to allow you to withdraw an overcontribution
without tax consequences as soon as you realize the penalty tax may
apply. You must withdraw from the same type of plan as that to
which the unused contributions were made: either your own RRSP or
an RRSP for your spouse or common-law partner.
If you overcontributed in 2014, you have until the end of 2016
to remove the excess contributions and have no personal income tax
on the withdrawal. The penalty tax still applies during the period
You may withdraw from an RRSP without withholding tax by
completing and filing Form T3012A Tax Deduction Waiver on the
Refund of Your Unused RRSP Contributions. This form requests the
CRA's approval to remove RRSP overcontributions without having
tax withheld. Once the T3012A form is filed, the CRA is aware of
the overcontribution and will ask you to fill out the T1-OVP form
to calculate the penalty tax.
If you withdraw RRSPs without filing Form T3012A, the issuer of
the plan must withhold tax of 10, 20 or 30 per cent, depending on
the dollar amount withdrawn. The tax withheld may be claimed on
your personal tax return in the year of withdrawal. Since no T3012A
form is filed, the CRA may not become aware of the RRSP
overcontribution. However, the onus remains on you to file Form
T1-OVP and pay the penalty tax.
The rules for excess RRSP contributions can be complicated and
the related forms difficult to complete. From time to time, the CRA
contacts individuals who "may" have excess RRSP
contributions. However, receipt of a letter from the CRA does not
necessarily mean you are offside of the RRSP contribution
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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