Personal Finance

RRSP Overcontribution and carry-forward

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  • Jan 19th, 2013 10:16 pm
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Sr. Member
Aug 29, 2004
952 posts
271 upvotes

RRSP Overcontribution and carry-forward

I made a pretty amateur mistake with my RRSPs and based my contributions for 2012 off of 2012 income, not what I had previously.

As such, I have a pretty large overcontribution (much more than $2000). I can't seem to find anything on the CRA website regarding this - do I still get assessed the 1% penalty if I only deduct the allowable amount, and carry forward the rest?

Can I make big overcontributions and then max out in future years, with the remaining over contribution just carrying to the next year? I should probably hire an accountant, but I'm curious to learn how all this works for myself.
10 replies
Deal Fanatic
User avatar
Feb 19, 2010
6237 posts
2992 upvotes
Need more details.

When did you make the contribution? If it was in 2012, you're likely only over-contributed until January 2013. If you made it this month, you're likely not over-contributed at all unless you had no earned income in 2012.
Sr. Member
Aug 29, 2004
952 posts
271 upvotes
Should have been more clear. Contributions were made in 2012 that put me over.

Thanks
Sr. Member
Aug 29, 2004
952 posts
271 upvotes
The other thing I might add - I'm expecting my 2013 and 2014 income to be very high, with a decrease after that that will still keep me in the top tax bracket - not sure how that figures in.
Sr. Member
Aug 29, 2004
952 posts
271 upvotes
OttawaGardener wrote: Here's some CRA info about excess contributions ... http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... s-eng.html
Thanks for posting that. I *think* I get it now. The link states "unused" contributions exceeding the allowable amount, so I'm presuming you are taxed regardless of whether or not you claim the deduction, which would make sense because you would get immediately flagged for deducting more than allowed come tax time.
Deal Addict
Aug 30, 2011
3537 posts
1279 upvotes
Ottawa
If it's an honest mistake (which it sounds like), the following may help (from that same link I posted above):

[QUOTE]Waiver of the RRSP excess contribution tax

If you determined that you must pay a tax on your RRSP excess contributions, you may ask in writing that the CRA waive the tax if:

your excess contributions on which the tax is based arose due to a reasonable error; and
you are taking, or have taken, reasonable steps to eliminate the excess contributions.
To consider your request, we will need a letter from you that explains:

why you made excess contributions and why this is a reasonable error; and
the steps you are taking, or have taken, to eliminate the excess contributions.
All supporting documents should be included with your letter, such as copies of your RRSP or (Registered Retirement Income Fund (RRIF) account statements that identify the date you withdrew your excess contributions, as well as any other correspondence that shows that your excess contributions arose due to a reasonable error.

For relief from the assessment of late-filing penalties and interest, see Information Circular IC07-1, Taxpayer Relief Provisions.[/QUOTE]
Sr. Member
Aug 29, 2004
952 posts
271 upvotes
OttawaGardener wrote: If it's an honest mistake (which it sounds like), the following may help (from that same link I posted above):
Honestly, its mainly based on me being ignorant and getting caught up in trying to save as much as possible without reading the rules. I basically took 18% of my income and then added my previous years room to it and then set a monthly contribution based on that.

Thanks for the help, I guess I have some explaining to do!
Deal Addict
Aug 30, 2011
3537 posts
1279 upvotes
Ottawa
scarface wrote: Thanks for posting that. I *think* I get it now. The link states "unused" contributions exceeding the allowable amount, so I'm presuming you are taxed regardless of whether or not you claim the deduction, which would make sense because you would get immediately flagged for deducting more than allowed come tax time.
You are right in this ... since you have to enter on Schedule 7 (http://www.cra-arc.gc.ca/E/pbg/tf/5000- ... s7-12e.pdf) any amount you contributed in the year, the CRA is aware of an over-contribution whether or not you claim an amount that year.
Deal Addict
User avatar
Nov 14, 2006
2569 posts
1818 upvotes
Waterloo
If your overcontribution is significant, you may want to consider withdrawing the excess from your RRSP to stop the 1% penalty from applying each month. Note that this won't get rid of the penalty for the previous months in which you've overcontributed, but it will stop the penalty going forward. This memo from TD Waterhouse gives a nice high level explanation of it: http://advisors.tdwaterhouse.ca/public/ ... 072392.pdf
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Deal Addict
User avatar
Apr 6, 2008
1613 posts
125 upvotes
Toronto
scarface wrote: Honestly, its mainly based on me being ignorant and getting caught up in trying to save as much as possible without reading the rules. I basically took 18% of my income and then added my previous years room to it and then set a monthly contribution based on that.

Thanks for the help, I guess I have some explaining to do!
Withdrawing excess contribution now would not help you as it would not help eliminate penalties, if any, for the year 2012 and in January 2013 your contribution room would open up based on your 2012 earned income so you would be fine. So, now you should stop any further contribution to RRSP and file the tax return for 2012 year and wait for the NOA for 2012 to check your future RRSP contribution room. You might be surprised that CRA may charge you very little to no penalties because the contributions in 2012 were not made in lump sum but in installments throughout the year.

Still, if you have any doubt then you should talk to an accountant before withdrawing any contributions.
Pramod Chopra
Mortgages and Investments

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