|How to fix RRSP overcontributions|
By Jessica Bruno, December 5, 2014
If you have undeducted RRSP contributions exceeding your deduction limit by more than $2,000, you’ve overcontributed.
What to do
STEP ONE: Decide whether or not to withdraw the money.
Canada Revenue Agency (CRA) may penalize overcontributions above the $2,000 cushion by 1% of the excess amount per month, but you aren’t obligated to withdraw the money, says Sandy Kirkwood-Pearce, owner and president of Sleegers Kirkwood-Pearce. “If the investment is doing really well, the consequences of the overpayment penalty […] might be overshadowed,” she says.
STEP TWO: If you decide to remove the money, ask CRA to waive withholding tax.
STEP THREE: Ask CRA to waive the 1% monthly excess contribution tax.
- CRA may approve your request, if:
i. why the error was made, and why it’s reasonable; and
ii. any steps you’ve taken to eliminate the excess contributions. Include copies of supporting documents, such as RRSP statements, that show you have withdrawn the excess funds, and any correspondence related to the error.
STEP FOUR: If CRA assesses the unused contribution room as a negative amount, you received gift money in your RRSP or you contributed money to your partner’s RRSP without claiming a tax deduction, you may have to submit Form T1-OVP Individual Tax Return for RRSP Excess Contributions.
STEP 5: Complete your annual return.
TIP: Complete a separate T476 for each year of overcontributions.
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