Personal Finance

"Cancelling" RRSP within frist year

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  • Dec 9th, 2011 6:35 pm
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Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver

"Cancelling" RRSP within frist year

Hello RFDers,

Hoping for some advice on RRSP...

This summer I made my first ever RRSP contribution, planning to take money out for HBP program in the fall. Plans changed and at this point I have no intention of getting HBP within the next couple years, and want to know if it's possible to get money back out of RRSP.

I would like to know what my options and consequences are for taking money out of RRSP now.

If I take it out by the end of the year, logically withdrawal should negate contribution and have zero net effect on taxes, but will my RRSP contribution room decrease by this amount?
16 replies
Member
Jan 24, 2007
322 posts
8 upvotes
what kind of research did you do before contributing to an RRSP?

"give a man the answer, he will come back with more stupid questions. teach a man how to find the answer, he will return as a wise man able to educate others" - tiger_handheld
Deal Addict
Mar 2, 2005
2033 posts
334 upvotes
You can't withdraw money from RRSP. You will have to pay income tax on all the funds you withdraw. Withdrawal under HBP is a little different as it doesn't require you to pay income taxes as long as you contribute the RRSP back within the required time frame.
Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver
I read all about the HBP program and some about RRSP prior to making the contribution and was certain it would be withdrawn through HBP, but sometimes plans change... I am trying to search now, but either closing RRSP account in the first year is a rare scenario, or I am not using proper terms...
Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver
Deal Grabber wrote: You can't withdraw money from RRSP. You will have to pay income tax on all the funds you withdraw. Withdrawal under HBP is a little different as it doesn't require you to pay income taxes as long as you contribute the RRSP back within the required time frame.
Let's ignore HBP part for now..

In my understanding,

Annual Income 2011 - RRSP contribution 2011 + RRSP withdrawal 2011 = Annual Income 2011

so it would be no different tax-wise from not making RRSP contribution at all. What I am curious about is whether the contribution room decreases by this amount and if there is any way to avoid that.
Deal Addict
Aug 28, 2010
3521 posts
1223 upvotes
Halifax
DealMaker1 wrote: so it would be no different tax-wise from not making RRSP contribution at all. What I am curious about is whether the contribution room decreases by this amount and if there is any way to avoid that.
Your math is correct, although I think you knew that already.

And I'm 99% certain you are going to lose the contribution room. I'm not aware of any rule where you retain the contribution room on a same year withdrawal. I'd give CRA a call to confirm though.
Deal Expert
User avatar
Jun 14, 2003
23140 posts
202 upvotes
DealMaker1 wrote: Let's ignore HBP part for now..

In my understanding,

Annual Income 2011 - RRSP contribution 2011 + RRSP withdrawal 2011 = Annual Income 2011

so it would be no different tax-wise from not making RRSP contribution at all. What I am curious about is whether the contribution room decreases by this amount and if there is any way to avoid that.

Did you report RRSP contribution 2011 to the government? I assume you did not since 2011 still have a month to go (just in case, you don't really mean 2011 but using that as an example). I don't think your contribution room will be touched. I can be wrong though.
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Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver
gman wrote: Did you report RRSP contribution 2011 to the government? I assume you did not since 2011 still have a month to go (just in case, you don't really mean 2011 but using that as an example). I don't think your contribution room will be touched. I can be wrong though.
Thanks for checking, I do mean 2011. Contribution was made in July 2011 and I did not submit a tax return or any other papers to CRA for the year. Whether the bank reported it I do not know.
Hope you are right, and this is what I'm trying to find out from the knowledgeable folks here.
Deal Addict
Aug 28, 2010
3521 posts
1223 upvotes
Halifax
gman wrote: Did you report RRSP contribution 2011 to the government? I assume you did not since 2011 still have a month to go (just in case, you don't really mean 2011 but using that as an example). I don't think your contribution room will be touched. I can be wrong though.

I don't think that's going to work. First of all, I'm nearly certain the bank will report the contribution to CRA.

Second, even if they don't, when he withdraws the money he is going to have withholding tax (unless it's only a small amount). And he is also going to have taxable income, which I'm nearly positive generates a tax slip. To get the withholding tax back and cancel out the income, he is going to have to claim the RRSP contribution on his taxes.
Deal Fanatic
User avatar
Sep 23, 2009
7081 posts
5209 upvotes
You would have to go to your bank and see what they say.

If you have a good relationship they may help to reverse your decision and contribution room will not be lost.

That is assuming you just held cash (or a GIC) in the account.

If investments turned sour and you want out ..... well .... they can't undo that.
Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver
renoldman wrote: If investments turned sour and you want out ..... well .... they can't undo that.
I am not trying to reverse financial losses. It's a simple RRSP savings account @ 1.50%, so it generated some income that I have no problem paying tax on.
Member
Oct 25, 2010
499 posts
61 upvotes
DealMaker1 wrote: Btw, thanks for all your responses!

Can you post what you've learned once you talk to CRA?
Deal Fanatic
User avatar
Sep 23, 2009
7081 posts
5209 upvotes
Steve98 wrote: Can you post what you've learned once you talk to CRA?

CRA will tell you that you take the deduction and must claim the withdrawal as income. Meaning contribution room would be lost.

So, I would talk to the bank, sometimes they can help with undoing certain things. This is something that would need to be done in person, not over the phone.

Nothing is guaranteed, but this is the best route.
Deal Addict
User avatar
Dec 28, 2004
2057 posts
478 upvotes
Burlington
If you do it before the end of the year the tax implications should be 0. IE - your tax deduction from putting it in should balance out your tax charge from taking it out. There might be other ways to get the money out such as life long learning and so forth. But that is all loans similar to HBP.

But you will loose that RRSP contribution room and not get it back!

Depending on what you have the money invested in inside of your RRSP there might be fees or it might be locked to get it out early also!
Newbie
Aug 30, 2011
68 posts
4 upvotes
Vancouver
Steve98 wrote: Can you post what you've learned once you talk to CRA?
Here's what a CRA CSR told me:

a) Form T746 should be filled out and RRSP withdrawal should be reported on line 232 instead of 208 on the tax return form
b) Contribution room will be lost

The rep sounded very junior and I had to explain the case, so I am going to call CRA once again and see if the answer changes :) (in my previous experience, those answers depend on the rep's knowledge...)
Deal Addict
Dec 14, 2004
1145 posts
468 upvotes
Waterloo
One other thing you should be aware of (if you aren't already), is that contributions must remain in the RRSP for at least 90 days before you can withdraw the funds for HBP. I couldn't tell from your post if you knew that already, but it's worth mentioning for the future.

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