RRSP Over Contributions – No Mercy

Do you know your RRSP Contribution Limit?

As we are coming up to the end of the year, many people are considering topping off their RRSP’s to maximize their 2019 tax deductions. However, we continually see some people who over contribute. In that case what happens?

The Penalty

For every dollar the RRSP is overcontributed (over the $2,000 overcontribution cushion), the CRA will charge you 1% per month as a penalty. That works out to 12% per year if overcontributed over a full year which is most likely way over any RRSP earnings in that period. This is designed as a penalty tax to discourage taxpayers who over contribute.

The Contribution Limit

RRSP contribution room for the current calendar period is calculated based on the prior years’ earned income X 18% less RRSP contributions already made less any “pension adjustment” which is a grind on RRSP limits due to registered pension plan contributions. In other words, it’s a retroactive calculation. Keeping track of the limit, contributions made, and “pension adjustments“ is extremely complex. Even relying on the CRA Notice of Assessment can be misleading as the contribution limit they report is not inclusive of previous excess RRSP contributions.

Due to the complexities, mistakes often occur. What happens when they do?

No Mercy

Generally, taxpayers can plead with CRA to reduce or eliminate penalties in cases of honest mistakes or reasonable errors. However, in a recent tax case, the taxpayer pleaded with CRA for “discretionary relief” on over contributions due to the fact that the taxpayer did not file several years of tax returns based on his accountants advice (as there would have been no taxes owing). The court ruled that this does not satisfy the requirement of a “honest mistake or reasonable error”. The taxpayer was therefore subject to over $62,000 in penalties and interest (plus court costs).

The Takeaway

Taxpayers need to monitor their RRSP contribution limits and ensure their investment advisors are competent and aware of this requirement. Taxpayers need to file all their tax returns and information returns on time so that they can keep track of running balances such as RRSP Contribution Room. In our firm, we communicate to our clients the RRSP limits to mitigate these types of issues.


Keith M.J. Anderson* BCom, CPA, CA-IT, CITP

Chartered Professional Accountant and Chartered Accountant (Canada)
CA-Designated Information Technology Specialist (Canada)
Certified Information Technology Professional (US)
* Professional Corporation

Web: www.AlbertaCPA.com
Email: keith@albertacpa.com
Phone: 780 447 5830
Fax: 780 451 6291
Cell: 780 906 2223

This information is provided for general information purposes only. As legislation changes frequently, certain information may be out of date periodically. The complexity of the Law and the varied circumstances of each taxpayer dictates that the information provided may not be suitable in all circumstances. Readers must not rely on any information provided without first obtaining direct and competent professional advice. The information provided is not intended to replace or serve as substitute for any audit, advisory, tax or other professional advice, consultation or service. Therefore, the information is provided “as is” without warranties of any kind, express or implied, including accuracy, timeliness and completeness. In no event shall and associated parties to this information be liable for any direct, indirect, incidental, special, exemplary, punitive, consequential or other damages whatsoever.

Leave a comment

Your email address will not be published.

3 × 2 =