Committed to providing solutions for your future needs.

VirtualSage™ - Start Your Plan

(877) 422-6346 x 224

Show all articles


Personal Wealth and Finance

Avoid RRSP Overcontributions

April 1, 2019


The registered retirement savings plan (RRSP) is a tax-deductible retirement plan which gives flexible control of your investments in the account. Until age 71, you can contribute to your RRSP, or of your spousal/common-law partner to their age 71.

An RRSP also defers ongoing taxation on investments which is why it is a favourable means of funding retirement over the long term. However, contributions to an RRSP are limited to a percentage of your previous year’s earned income, and it is not uncommon for over-contributions to occur inadvertently.

Unused Deductions. Deduction limits are set each tax year for contributions to an RRSP. However, the full annual deduction is not necessarily always used. Unclaimed deduction limit amounts for prior years accumulate to increase your deduction limits. Note: unclaimed deductions are not the same as unclaimed contributions.

A quick way to know your deduction limit. If you’re a CRA My Account holder, you can sign into the online portal to view your past limits and contributions. You can also review your limit calculated by CRA on your notice of assessment. In case you need to calculate it yourself, though, note that limits are 18 percent of your prior year’s income, with a maximum of $26,500 (for 2019).

Excess RRSP contribution penalties. When overcontribution to an RRSP occurs, the CRA charges a penalty on the excess contributions, which cannot be deducted from your taxable income. To avoid accumulating these penalties, specific actions need to be taken to resolve the situation. If there is an excess RRSP contribution it must be reported, and the related tax paid, before 90 days into the year following the tax year in which you over-contributed.

Defining Excess Contributions. Governmental tax laws define the excessive contribution as any contributions exceeding your deduction limit, plus $2,000 (the level of excess allowed, but is not tax-deductible). You must also take into consideration contributions made to specified pension plans (SPP) and pooled registered pension plans (PRPP). These plan contributions are classified as additional RRSP contributions accumulative to the sum of your total contributions.

  • Penalties may be incurred Because RRSP contributions are not subject to income tax, the tax deduction from your taxable income cannot include any over-contribution amount to an RRSP. Excess contributions over the $2,000 mark, are charged a penalty of a 1 percent tax per month on excess contributions.
  • Increased penalties for late tax payments Returns filed after the deadline are subject to an additional penalty of 5 percent of the taxes you owe plus an extra 1 percent surcharge for every month. In addition, daily compound interest is added to late payments. You may be able to have these penalties waived by applying for relief through the CRA’s Voluntary Disclosure Program. If successful, you only pay the extra tax you owe along with any accrued interest.
    • Settle the tax with CRA To settle the 1 per cent tax on excess contributions, simply complete the T1-OVP form and send to your respective tax centre, and remit the corresponding payment to the CRA. Alternatively, you can request the penalty to be waived by sending the CRA a letter explaining how your overcontribution was due to a reasonable error and how you have taken steps to correct it (such as by including an RRSP statement showing the withdrawal of the overcontribution).

Source: CRA


Publisher's Copyright & Legal Use Disclaimer Replication is prohibited beyond the use of this website. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision or purchase or use of a financial product, including investment or insurance products, and suggest that a professional advisor's counsel is sought, especially with regard to Segregated Funds and Investment Funds which have investment risks as noted in the Fund Disclaimer. All rights reserved by Adviceon®

Disclaimer The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This website is not deemed to be used as a solicitation in a jurisdiction where this representative is not registered. This content is not intended to provide specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the information contained herein is subject to change without notice. References in this Web site to third party goods or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services. Always consult an appropriate professional regarding your particular circumstances before making any financial decision.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds, including segregated fund investments. Please read the fund summary information folder prospectus before investing. Investment Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any financial decision. A description of the key features of the applicable individual variable annuity contract or segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to change.

Newsletter tags