Personal Finance

RRSP over contribution

  • Last Updated:
  • Aug 1st, 2020 12:14 pm
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
580 upvotes

RRSP over contribution

Need some advice regarding RRSP over contribution

Long story short, I miscalculated the RRSP room when I had to transfer out a lump amount from the previous job's pension plan to another pension plan (due to the surplus of the pension conversion calculation). At the end, I realized I over contributed $8,037 for 2019 RRSP. I just got a Notice of Assessment from CRA for my 2019 tax return. According to their RRSP deduction limit statement, it shows a credit balance of ($5,136) for the available contribution room for 2020 (Note: 18% of Income earned in 2019 minus 2019 pension adjustment = $2,901 RRSP deduction limit for 2020, and they apply this room to the $8,037 over contribution).

I had multiple calls with the CRA agents. The first agent told me to withdraw the excess amount ASAP to minimize the penalty, and fill out the 2019 T1-OVP form to calculate the penalty, then mail in the cheque for the amount owed along with the form. The form has several schedules and kind of confusing. So, I called again to confirm how to fill it out properly. The agent I talked to this afternoon told me that the assessment shows over contribution for 2020 (Available contribution room for 2020), it means I should be filling out the 2020 T1-OVP form (not 2019 T1-OVP form), and the 2020 form is not available until early next year in Jan/Feb 2021.

I just want to confirm with someone who has experience with this. Is it correct that I only need to file the 2020 T1-OVP form next year ?

The second agent also pointed out that the pension adjustment from my 2020 income will also change this over contribution amount they currently shows on the assessment. However, I would not know what the 2020 pension adjustment will be until 2020 T4 is available next year..... Since I left the last job with pension plan in Feb 2020, she said I could just estimate based on the last year pension adjustment i.e. 2019 pension adjustment divided by 12 x 2 months of pension adjustment, and withdraw extra amount from the RRSP account on top of what it shows on the 2019 CRA assessment right now.

Sorry for the long and complicated story. Hope someone who has experience with this can give me some advice what I need to do now, especially how much to withdraw the RRSP account ASAP before the end of July to avoid another month of penalty. Originally, the agent said I could withdraw $3,136 (because of the $2,000 forgiveness amount).

Thanks

Note: I have not been contributing any other RRSP since the lump sum transfer in June 2019 which caused the over contribution problem. Job with pension plan ended in Feb 2020. Thus, no more pension adjustment since that.
20 replies
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
580 upvotes
Additional information: The assessment says CRA changed the RRSP deduction I filed on the 2019 tax return to the maximum room I had. The balance (excess of $8,037) is now the unused RRSP contributions which is more than the RRSP deduction limit for 2020 ($2,901) that I mentioned how they calculated from my previous post.

There is a footnote at the bottom of the RRSP deduction limit statement: "If your available contribution room is a negative amount (shown in brackets), you have no contribution room available for 2020 and may have over contributed to your RRSP. If this is the case, you may have to pay a 1% monthly tax on any excess contributions."

The assessment actually does not tell me what my action items are. Does it mean they will probably send me another assessment after I file the 2020 tax return in 2021 and tell me what I will need to do ? And for now, all I should do is to withdraw the excess amount ASAP ?
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Nov 18, 2007
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Valleywood
You can exceed your limit by $2,000 and not be penalized, so that brings your overcontribution to $6,037.

If your earnings for 2020 will result in added RRSP room of something close to $6,000 then you will be back onside when filing for 2020.

I have done this a couple of times and have never been charged the 1% penalty.
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
580 upvotes
Thanks a lot for sharing your experience. Yes, they told me there is $2,000 forgiveness limit. Thus, the CRA agent said my penalty calculation would be calculated from $3,136 not $5,136 shown on their assessment for 2019 tax return.

Do you mean I don't need to do anything now ? Not even withdrawing the $3,136 (or $5,136) shown as over contribution on the assessment?

I am little confused, the RRSP room for my 2020 tax return should be based on my income in 2020 + whatever amount carried forward from prior years, is it correct ?

So, in my case does it mean the carried forward RRSP room from 2019 is ($5,136) and I should be getting additional RRSP room for 2020 from my 2020 income (18% of gross 2020 income)? If so, then I probably don't need to withdraw the excess amount now provided I make more $30K in 2020 . Please correct if I am wrong.

I am thinking maybe that's the reason the note on CRA assessment say I may have to pay 1% penalty for the over contribution. I guess they say "may" assuming in the case that if I don't have income in 2020, I will not have additional RRSP room to cover that over contribution and I will have to pay the penalty. Do I understand it correctly? Thanks
fastlayne wrote: You can exceed your limit by $2,000 and not be penalized, so that brings your overcontribution to $6,037.

If your earnings for 2020 will result in added RRSP room of something close to $6,000 then you will be back onside when filing for 2020.

I have done this a couple of times and have never been charged the 1% penalty.
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
580 upvotes
I just Googled the tax rule. The RRSP limit is based on prior year annual income x 18% minus pension adjustment (if applicable). If that is the case, the 2020 RRSP room for me would be exactly what listed on the CRA assessment, $2,901, and I will be $5,136 over in 2020 tax return ($8,037 unused contribution in 2019 minus $2,901 RRSP room for 2020). I guess I will need to transfer out the $5,136 from my RRSP account. Do you guys agree ?
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
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CRA doesn't say any action item on my credit balance (over contribution) of 2020 RRSP room. But when I called them, they said I should file 2020 T1-OVP form for the penalty, but the form is not even available now till Jan/Feb 2021......
fastlayne wrote: You can exceed your limit by $2,000 and not be penalized, so that brings your overcontribution to $6,037.

If your earnings for 2020 will result in added RRSP room of something close to $6,000 then you will be back onside when filing for 2020.

I have done this a couple of times and have never been charged the 1% penalty.
Member
Feb 13, 2008
493 posts
203 upvotes
Edmonton, AB
Well OP, every employee at CRA make their own rules. I was in a similar situation before and no penalty was charged. If your contibution room for 2020 is higher you maybe okay. Note the words maybe and may means 'will' to some people. I know this does not help you. I am wondering if the instution where you have your RRSP can advise you.
[OP]
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Jun 7, 2005
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cocotheparrot wrote: Well OP, every employee at CRA make their own rules. I was in a similar situation before and no penalty was charged. If your contibution room for 2020 is higher you maybe okay. Note the words maybe and may means 'will' to some people. I know this does not help you. I am wondering if the instution where you have your RRSP can advise you.
You are right, I talked to several CRA agents in the last couple days, each of them are telling me different things I need to do.........

You said you were in the similar situation. Did you mean you got the assessment saying your available contribution is a credit balance i.e. over contributed. For my case, the assessment for 2019 tax return says my room for 2020 is ($5,136). If the rule for RRSP room and contribution is based on prior year, the statement basically tells me that when I file the 2020 tax return in 2021, my RRSP contribution will be over by $5,136. And I won't have additional RRSP room until 2021 tax return which will be based on my 2020 earning. Am I correct ?

So, to my understanding if I don't withdraw this $5,136. Technically, I was over in 2019 tax return and will be over again in 2020 tax return. As mentioned in original post, this overage came from a lump sum transfer from a pension plan of one of previous employer. They calculated a surplus from the plan and asked my RRSP room to transfer. I didn't realize the amount shown on CRA that moment was not updated with last RRSP contribution, thus told that the wrong amount which resulted in this over contribution in 2019. On this 2019 assessment, CRA has advised me that they changed (reduced) my RRSP deduction to 2019 tax return, and applied the balance against my RRSP room for 2020. That's how they came up with the ($5,136) credit balance. On the assessment, it does not say any action for me. But I guess I should transfer out this $5,136 from the RRSP account. Do you guys agree ? Thanks
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Dec 24, 2007
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BC
Yes, you need to withdraw the overcontribution ASAP as you have excess RRSP contributions at this point and and will still have an excess for months going forward until the excess is gone.

Follow the procedures in the CRA RRSP guide See section on Tax on RRSP, PRPP, or SPP excess contributions

Normally, any amount withdrawn from an RRSP would be included in income and be taxed. To avoid this income inclusion you will need a Waiver of that tax. Follow the procedures in the same CRA RRSP guide on Unused RRSP, PRPP, or SPP contributions. The form must be sent to CRA for approval of the Waiver. After CRA returns the form, take it to your Financial Institution when you make the withdraw. If you don't do this, that excess contribution will be taxed even though you will not get a RRSP deduction for it.

Go through the steps in Chart #4 in the Guide to see whether the penalty applies to you. Most likely it does. If you determine that it does, you have to file the 2020 T1-OVP return and pay the tax no later than 90 days after the end of the year. So, you can wait until the form comes available in February 2021 and filed by end of March 2021 (Just don't forget as there is a 5% penalty if you don't)

In the same CRA RRSP guide there is section headed "Waiver of the RRSP excess contribution tax". You can request in writing that the CRA waive the penalty as many people inadvertantly make this mistake. CRA will waive the tax if the following two conditions are met:
  • your excess contributions on which the tax is based arose due to a reasonable error
  • you are taking, or have taken, reasonable steps to eliminate the excess contributions
As this is a reasonable error and not something that you are deliberately trying to over-contribute to the RRSP, the CRA will highly likely grant the waiver and you can avoid having to pay the excess tax.

It is complicated but you must do it ASAP and document everything so that you can "beg for forgiveness" from the CRA as you're an uninformed regular Joe Taxpayer and hope that the waiver is granted.
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Nov 19, 2004
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Cambridge, ON
If your NOA from filing your 2019 taxes says you have -$5136 in contribution room for 2020, then take it out right away. You are paying 1% per month for that over contribution.

The T1-OVP form is not that difficult once you actually go through it step by step. It just looks daunting because of the spaces for each month. If it is an honest mistake, you can also ask the CRA to waive the penalty if you react quickly and remove the excess. If you do nothing, then don't count on having the penalty waived.

Keep in mind that you will be charged a withholding tax if you take out the excess. You can apply for a waiver on the withholding tax using the T3012a, but this takes time to get approved so you may be paying for another month while you wait.

Talk to the FI where you plan on removing the excess from. They should be able to help.
[OP]
Deal Fanatic
Jun 7, 2005
8548 posts
580 upvotes
Thanks for all the information.

Yes, I had withdrawn the excess yesterday (before August) to avoid another month of penalty.

Yes, when I talked to the CRA, the last agent told me that I should file the T1-OVP for 2020 in Jan/Feb 2021 as the 2020 form is not available now. However, the previous agent was telling me to file 2019 T1-OVP. Thus, I am confused. The last agent said my 2019 assessment shows the RRSP contribution deduction limit statement with the credit balance for "Available contribution room for 2020", thus I should be filing 2020 T1-OVP.

Regarding the tax for the withdrawn RRSP, TD told me that there is 20% deduction from the amount I withdrew, which represents the estimated tax I will have to pay for the withdrawal.

Regarding the waiver request, do you I ask to waive the tax on the excess withdrawal ? or waive the 1% penalty on excess contribution.

On the same 2019 tax return assessment, there is a tax due after they re-calculated my tax payable for 2019 (may or may not be related to my RRSP over contribution as my 2019 tax return was more complicated than my normal year, There were T4s from two companies, a lump of severance pay, surplus from pension plan as taxable payout, along with the RRSP over contribution due to surplus from the pension plan that was transferred to the RRSP account. Anyway, at the end, they listed out the action item and asked me to pay the amount due by Sept 1 (I did it). However, on the second section of the assessment which shows RRSP deduction limit statement, it does not tell me what I need to do. If people do call them, will they eventually send them a tax due statement from the calculation of the T1-OVP?

WetCoastGuy wrote: Yes, you need to withdraw the overcontribution ASAP as you have excess RRSP contributions at this point and and will still have an excess for months going forward until the excess is gone.

Follow the procedures in the CRA RRSP guide See section on Tax on RRSP, PRPP, or SPP excess contributions

Normally, any amount withdrawn from an RRSP would be included in income and be taxed. To avoid this income inclusion you will need a Waiver of that tax. Follow the procedures in the same CRA RRSP guide on Unused RRSP, PRPP, or SPP contributions. The form must be sent to CRA for approval of the Waiver. After CRA returns the form, take it to your Financial Institution when you make the withdraw. If you don't do this, that excess contribution will be taxed even though you will not get a RRSP deduction for it.

Go through the steps in Chart #4 in the Guide to see whether the penalty applies to you. Most likely it does. If you determine that it does, you have to file the 2020 T1-OVP return and pay the tax no later than 90 days after the end of the year. So, you can wait until the form comes available in February 2021 and filed by end of March 2021 (Just don't forget as there is a 5% penalty if you don't)

In the same CRA RRSP guide there is section headed "Waiver of the RRSP excess contribution tax". You can request in writing that the CRA waive the penalty as many people inadvertantly make this mistake. CRA will waive the tax if the following two conditions are met:
  • your excess contributions on which the tax is based arose due to a reasonable error
  • you are taking, or have taken, reasonable steps to eliminate the excess contributions
As this is a reasonable error and not something that you are deliberately trying to over-contribute to the RRSP, the CRA will highly likely grant the waiver and you can avoid having to pay the excess tax.

It is complicated but you must do it ASAP and document everything so that you can "beg for forgiveness" from the CRA as you're an uninformed regular Joe Taxpayer and hope that the waiver is granted.
[OP]
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Jun 7, 2005
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Thanks. Yes, I took out the excess yesterday, and the bank told me there is 20% withholding tax. By the way, I don't understand why would they waiver the tax. That is a taxable income I would have to pay if it was contributed. If they waive the 1% penalty, that I could understand as that is a penalty. Anyway, since I already withdrew it, I guess it is too late to submit T3012a, right ?

By the way, on the same 2019 tax return assessment, there is a tax due after they re-calculated my tax payable for 2019 (may or may not be related to my RRSP over contribution as my 2019 tax return was more complicated than my normal year, There were T4s from two companies, a lump of severance pay, surplus from pension plan as taxable payout, along with the RRSP over contribution due to surplus from the pension plan that was transferred to the RRSP account (Note: There was a surplus when I converted my pension plan, one portion was payout as taxable income, and the other portion was supposed to transfer to RRSP account and use up all my RRSP room. However, I messed up with the RRSP room and over contributed, which triggered this over contribution issue in 2019 tax return). Anyway, at the end, they listed out the action item and asked me to pay the amount due by Sept 1 (I did it). However, on the second section of the assessment which shows RRSP deduction limit statement, it does not tell me what I need to do. If people do call them, will they eventually send them a tax due statement from the calculation of the T1-OVP?
don242 wrote: If your NOA from filing your 2019 taxes says you have -$5136 in contribution room for 2020, then take it out right away. You are paying 1% per month for that over contribution.

The T1-OVP form is not that difficult once you actually go through it step by step. It just looks daunting because of the spaces for each month. If it is an honest mistake, you can also ask the CRA to waive the penalty if you react quickly and remove the excess. If you do nothing, then don't count on having the penalty waived.

Keep in mind that you will be charged a withholding tax if you take out the excess. You can apply for a waiver on the withholding tax using the T3012a, but this takes time to get approved so you may be paying for another month while you wait.

Talk to the FI where you plan on removing the excess from. They should be able to help.
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Nov 19, 2004
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Cambridge, ON
rdx wrote: Thanks for all the information.

Yes, I had withdrawn the excess yesterday (before August) to avoid another month of penalty.

Yes, when I talked to the CRA, the last agent told me that I should file the T1-OVP for 2020 in Jan/Feb 2021 as the 2020 form is not available now. However, the previous agent was telling me to file 2019 T1-OVP. Thus, I am confused. The last agent said my 2019 assessment shows the RRSP contribution deduction limit statement with the credit balance for "Available contribution room for 2020", thus I should be filing 2020 T1-OVP.

Regarding the tax for the withdrawn RRSP, TD told me that there is 20% deduction from the amount I withdrew, which represents the estimated tax I will have to pay for the withdrawal.

Regarding the waiver request, do you I ask to waive the tax on the excess withdrawal ? or waive the 1% penalty on excess contribution.

On the same 2019 tax return assessment, there is a tax due after they re-calculated my tax payable for 2019 (may or may not be related to my RRSP over contribution as my 2019 tax return was more complicated than my normal year, There were T4s from two companies, a lump of severance pay, surplus from pension plan as taxable payout, along with the RRSP over contribution due to surplus from the pension plan that was transferred to the RRSP account. Anyway, at the end, they listed out the action item and asked me to pay the amount due by Sept 1 (I did it). However, on the second section of the assessment which shows RRSP deduction limit statement, it does not tell me what I need to do. If people do call them, will they eventually send them a tax due statement from the calculation of the T1-OVP?
There may have been an over contribution in 2019 as well, which is why it may seem like you received two different answers. If you were over for any part of 2019, then the T1-OVP for 2019 would be needed. However, any pension adjustment would have been applied at the end of the year (affecting your 2020 room) so you are probably ok.

The waiver I mentioned was for the withholding tax, but since you are just going to have that deducted then don't worry about it. You will get it back at tax time (or have it applied to tax owing) so that will balance out then. You can ask for the penalty to be waived as well. Usually need a letter that explains the situation and provide the documentation showing that you took action as soon as you realized you were over (receiving your NOA). No guarantees, but they often will forgive the penalty especially when there is a clear misunderstanding around how the pension affects your room.
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Dec 24, 2007
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Regarding the Withholding Tax taken by the bank, you will get this back when you file your income tax return for 2020 as it is just a prepaid tax amount and should be included with your taxes paid by installment.

You will need to deduct the Unused RRSP Contribution you have withdrawn on your tax return for 2020, so the RRSP withdrawal amount included in income is a wash. Make sure you tell your accountant that you had a Excess RRSP Contribution withdrawal amount. You need file the Waiver form that was to be given to the Financial Institution approved by CRA or Form T746 with the return. See instructions in the Federal Tax Guide Other deductible Amounts.

"certain unused RRSP, pooled registered pension plan (PRPP), or specified pension plan (SPP) contributions which were refunded to you or your spouse or common-law partner in 2019 (attach to your return an approved Form T3012A, Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP or SPP contributions from your RRSP, or Form T746, Calculating Your Deduction for Refund of Unused RRSP, PRPP, and SPP Contributions)"

Regarding the Waiver Request to the CRA, it is only for tax on excess RRSP contributions as the Additional taxes payable is taken care of the above.

The filing of the T1-OVP is your responsibility . If you don't file, there is a 5% penalty for late-filing when they eventually notice that there was an excess contribution.
[OP]
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Jun 7, 2005
8548 posts
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Thanks again.

Regarding the pension adjustment, the last CRA agent almost asked me about the 2020 pension adjustment and said it might affect my over contribution for 2020. I am a bit confused. To my understanding (please correct me if I am wrong), my current year RRSP room is based on prior year earning minus pension adjustment (if applicable). For my case, my 2020 RRSP should be based on my 2019 earning and 2019 pension adjustment, right ? And the assessment I received has shown my RRSP for 2020 is $2,901 (before applying the $8,037 RRSP over contribution). My 2020 earning and 2020 pension would be used to calculate my 2021 RRSP room, right ?
don242 wrote: There may have been an over contribution in 2019 as well, which is why it may seem like you received two different answers. If you were over for any part of 2019, then the T1-OVP for 2019 would be needed. However, any pension adjustment would have been applied at the end of the year (affecting your 2020 room) so you are probably ok.

The waiver I mentioned was for the withholding tax, but since you are just going to have that deducted then don't worry about it. You will get it back at tax time (or have it applied to tax owing) so that will balance out then. You can ask for the penalty to be waived as well. Usually need a letter that explains the situation and provide the documentation showing that you took action as soon as you realized you were over (receiving your NOA). No guarantees, but they often will forgive the penalty especially when there is a clear misunderstanding around how the pension affects your room.

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