Personal Finance

RRSP deduction and Unused limit

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  • Apr 12th, 2016 3:14 pm
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[OP]
Sr. Member
Feb 21, 2010
879 posts
253 upvotes
Scarborough

RRSP deduction and Unused limit

Hi
My 2015 RRSP deduction limit is 25000 and my Unused RRSP contributions available to deduct for 2015 is 10000. I have put $25k in RRSP before Feb 29 this year.
Now when I am filing my taxes online, uFile says that I can deduct 25000 but I have over-contributed to my RRSP by more than 2k.

I did some research and realize that I could only contribute A - B + 2K = so 25 - 10 + 2 = 17k in RRSP for 2015. Remaining 8k is over contribution and is subject to penalty. Is this understanding correct?

Now, I have HBP Repayable Balance of 20k. Can I direct excess contribution of 8k towards HBP repayment instead of withdrawing from RRSP?

I really want to avoid withdrawing from RRSP as it will be subject to withholding taxes which I will have to wait until next year to claim back.

Thanks,
RC
8 replies
Deal Addict
Jun 12, 2015
2285 posts
809 upvotes
Ontario
romeocanada wrote: Hi
My 2015 RRSP deduction limit is 25000 and my Unused RRSP contributions available to deduct for 2015 is 10000. I have put $25k in RRSP before Feb 29 this year.
Now when I am filing my taxes online, uFile says that I can deduct 25000 but I have over-contributed to my RRSP by more than 2k.

I did some research and realize that I could only contribute A - B + 2K = so 25 - 10 + 2 = 17k in RRSP for 2015. Remaining 8k is over contribution and is subject to penalty. Is this understanding correct?

Now, I have HBP Repayable Balance of 20k. Can I direct excess contribution of 8k towards HBP repayment instead of withdrawing from RRSP?

I really want to avoid withdrawing from RRSP as it will be subject to withholding taxes which I will have to wait until next year to claim back.

Thanks,
RC
Yes you can designate excess to paying back HBP. This obviously will not deductible for income tax. Keep in mind next year you still have to pay HBP payment BUT it will be lower minimum.
Deal Addict
Jul 15, 2009
2333 posts
1490 upvotes
romeocanada wrote: Hi
My 2015 RRSP deduction limit is 25000 and my Unused RRSP contributions available to deduct for 2015 is 10000. I have put $25k in RRSP before Feb 29 this year.
Now when I am filing my taxes online, uFile says that I can deduct 25000 but I have over-contributed to my RRSP by more than 2k.

I did some research and realize that I could only contribute A - B + 2K = so 25 - 10 + 2 = 17k in RRSP for 2015. Remaining 8k is over contribution and is subject to penalty. Is this understanding correct?

Now, I have HBP Repayable Balance of 20k. Can I direct excess contribution of 8k towards HBP repayment instead of withdrawing from RRSP?

I really want to avoid withdrawing from RRSP as it will be subject to withholding taxes which I will have to wait until next year to claim back.

Thanks,
RC
Did you make your contribution after January 1st, 2016? Did you make more than $40k earned income in 2015? If yes to both, then you have not overcontributed. Ufile is wrong here. You can deduct 25k now, and save the other 10k for your 2016 taxes.

If you answered no to one of the questions, then yes, you can still avoid an overcontribution by designating some of your contribution as an HBP repayment as you suggest. No need to withdraw from the RRSP.
Deal Addict
Mar 8, 2013
2722 posts
1415 upvotes
I got a similar message from Ufile, but slightly different circumstances. First of all, whatever Ufile indicates is based on the numbers that you entered or carried forward, not directly from CRA. Ufile can also calculate what your RRSP room is for 2016 based on those numbers, your 2015 earned income, pension adjustment, etc. So there is no need to withdraw from your RRSP until you are sure that you won't have enough room in 2016. In the PDF generated by Ufile, what does it say in Table G at the bottom of the RRSP Schedule?
[OP]
Sr. Member
Feb 21, 2010
879 posts
253 upvotes
Scarborough
bubak wrote: Did you make your contribution after January 1st, 2016? Did you make more than $40k earned income in 2015? If yes to both, then you have not overcontributed. Ufile is wrong here. You can deduct 25k now, and save the other 10k for your 2016 taxes.

If you answered no to one of the questions, then yes, you can still avoid an overcontribution by designating some of your contribution as an HBP repayment as you suggest. No need to withdraw from the RRSP.
Hi,

Thanks for the reply. I made the contribution of $25k in Feb 2016. I had more than $40k earned in 2015. So, basically it is a Yes to both the questions.
UFile is allowing me to deduct $25k but is saying that I have over-contributed as I could only contribute A - B which is 25k-10k, so 15K in my case. There is a 2k grace, so I have over-contributed by 8k for 2015 tax year.

This is what I am planning to do -
Deduct 25k for RRSP from 2015 taxes. Designate 10K from Feb 2016 contribution towards HBP.
Now for 2016 tax year, I will get new RRSP limit of approx. 25k based on my 2015 earned income. Line B of $10k will be carried forward. Now, in Feb 2017, I will contribute 25K again to RRSP and then designate 10K to HBP.
For 2017 tax year, I will again get new RRSP limit of approx. 26k based on my 2016 tax year. I will have 0 for Line B, zero for HBP balance. I will then contribute 26K in Feb 2016 and claim whole 26K as RRSP deduction on my 2017 returns.

Is there a better way to optimize cash flows and ensure that I maximize my RRSP deductions?
[OP]
Sr. Member
Feb 21, 2010
879 posts
253 upvotes
Scarborough
akaManny wrote: I got a similar message from Ufile, but slightly different circumstances. First of all, whatever Ufile indicates is based on the numbers that you entered or carried forward, not directly from CRA. Ufile can also calculate what your RRSP room is for 2016 based on those numbers, your 2015 earned income, pension adjustment, etc. So there is no need to withdraw from your RRSP until you are sure that you won't have enough room in 2016. In the PDF generated by Ufile, what does it say in Table G at the bottom of the RRSP Schedule?
I used auto download feature to get details from CRA. uFile is putting Line B balance of $10k for both myself and spouse. Any idea why?
Designating $10k from my Feb 2016 contribution of 25k towards HBP and using $25k deduction in 2015, my line B will be carried forward. So. Table F should have 10k. Now, for table G - new limit will be 25370 minus Table F of 10k, so contribution limit for 2016 will be 15370
Deal Addict
Mar 8, 2013
2722 posts
1415 upvotes
romeocanada wrote: I used auto download feature to get details from CRA. uFile is putting Line B balance of $10k for both myself and spouse. Any idea why?
Designating $10k from my Feb 2016 contribution of 25k towards HBP and using $25k deduction in 2015, my line B will be carried forward. So. Table F should have 10k. Now, for table G - new limit will be 25370 minus Table F of 10k, so contribution limit for 2016 will be 15370
I don't know enough about HBP to comment on that part, other than it is not clear why you would pay back more than the minimum each year. But for your original question, Table G indicates that you have not overcontributed since some of your contribution in February can be used for 2016.
Deal Addict
Mar 8, 2013
2722 posts
1415 upvotes
romeocanada wrote: Hi,

Thanks for the reply. I made the contribution of $25k in Feb 2016. I had more than $40k earned in 2015. So, basically it is a Yes to both the questions.
UFile is allowing me to deduct $25k but is saying that I have over-contributed as I could only contribute A - B which is 25k-10k, so 15K in my case. There is a 2k grace, so I have over-contributed by 8k for 2015 tax year.

This is what I am planning to do -
Deduct 25k for RRSP from 2015 taxes. Designate 10K from Feb 2016 contribution towards HBP.
Now for 2016 tax year, I will get new RRSP limit of approx. 25k based on my 2015 earned income. Line B of $10k will be carried forward. Now, in Feb 2017, I will contribute 25K again to RRSP and then designate 10K to HBP.
For 2017 tax year, I will again get new RRSP limit of approx. 26k based on my 2016 tax year. I will have 0 for Line B, zero for HBP balance. I will then contribute 26K in Feb 2016 and claim whole 26K as RRSP deduction on my 2017 returns.

Is there a better way to optimize cash flows and ensure that I maximize my RRSP deductions?
The problem with contributing early in a year is that you likely don't know your income for that year. So if you lost your job in March, you might have income so low that year that it wouldn't make sense to deduct the RRSP contribution. If you have cash available in February, maybe there is a better place to put it than an RRSP with the expectation of a high marginal rate - mortgage, TFSA, etc.
Deal Addict
Jul 15, 2009
2333 posts
1490 upvotes
romeocanada wrote: Hi,

Thanks for the reply. I made the contribution of $25k in Feb 2016. I had more than $40k earned in 2015. So, basically it is a Yes to both the questions.
UFile is allowing me to deduct $25k but is saying that I have over-contributed as I could only contribute A - B which is 25k-10k, so 15K in my case. There is a 2k grace, so I have over-contributed by 8k for 2015 tax year.

This is what I am planning to do -
Deduct 25k for RRSP from 2015 taxes. Designate 10K from Feb 2016 contribution towards HBP.
Now for 2016 tax year, I will get new RRSP limit of approx. 25k based on my 2015 earned income. Line B of $10k will be carried forward. Now, in Feb 2017, I will contribute 25K again to RRSP and then designate 10K to HBP.
For 2017 tax year, I will again get new RRSP limit of approx. 26k based on my 2016 tax year. I will have 0 for Line B, zero for HBP balance. I will then contribute 26K in Feb 2016 and claim whole 26K as RRSP deduction on my 2017 returns.

Is there a better way to optimize cash flows and ensure that I maximize my RRSP deductions?
Since your contribution was in Feb 2016, you did not overcontribute by 8k for the 2015 tax year.

You can designate 10k to HBP now, but there is no need to.

If you designate 10k to HBP now, that 10k will not be carried forward to 2016.

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