If I tell you every tax season is smooth as butter, that is not true. I had one new client, who came to tell me he over contributed RRSP for 30k for a number of years. I asked him how this could happen and how come it was so late to notice the issue.
The answer was “No idea”.
A lot of people may be familiar with RRSP contribution every year but ignoring the RRSP limit set by the CRA(you can find it in your notice of assessment or My Account if you have set up online access)and the impact if overcontribute.
Let’s understand the impact first. Basically,you have to pay a penalty calculated based on 1% monthly of the excesss RRSP contribution.Luckily, the CRA allows only $2,000 over contribution in RRSP in life time. So, if the excess amount is not significant,you should not be over-concerned.
However, if the over contribution is very significant like the one that we talked above , then we have to look at the following steps:
1-ask yourself the reason why over contribution occurs;
2-withdraw the excess RRSP contribution immediately;
3-If you have to pay 1% tax , then fill out T1-OVP and disclose the excess contribution to the CRA, here is the link:
4-if it is a reasonable error, then write a letter explaining the details to the CRA. The CRA may cancel/waive the tax on the excess contributions.
5-If you realize the information you gave to the CRA is wrong or incomplete, you may be able to make a voluntary disclosure. Please talk to your accountant on this. Make sure the disclosure is done properly.
And remember, the due date for filing the T1-OVP is 90 days after the end of the calendar year. If it is filed late, then late filing penalty may be charged.
RRSP over contribution may be caused by various reasons: not fully understanding the mechanism of RRSP contribution limit or forgetting your monthly RRSP contribution, or even your employer’s pension contribution(also called pension adjustment showed on your T4 slip), which will reduces the RRSP contribution limit accordingly.The pension adjustment (PA) amount is the value of the benefits you earned in that year under your employer’s registered pension plans (RPP)and deferred profit sharing plans (DPSP).
One quick solution to avoid over contribution— call your accountant/the CRA(or even check My Account online will help as well) to confirm before you make the contribution every year.. Simple like this.
Enjoy the summer!
Recent Comments