Miscalculated and over contributed to your RRSP? If that over contribution exceeds the $2000 limit; here’s what to do:
Decide Whether to Withdraw the Money. CRA will penalize you 1% of the overage every month until withdrawn, so in most cases you will want to withdraw the money right away. However, you are not obligated to withdraw the money; so if your investment is doing exceptionally well the penalty for over contributing may be overshadowed by the investment return.
Ask CRA to Waive Withholding Tax. First, calculate the amount you can pull out of your RRSP without withholding tax by filling out Part 1 of form ‘T3012A Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP or SPP Contribution from your RRSP’. In part 2 designate which RRSP account you are going to make the withdrawal from and attach proof of the over contribution. If approved, CRA will send you three signed copies of the form, send the copies to the financial institution that holds your RRSP. Once the withdrawal is complete, the financial institution will return two copies to you.
Tip: If it is only a small amount you are withdrawing it might not be worth the time or accounting fees to fill out the T3012A. Go ahead and withdraw the money, don’t worry about the withholding tax it will go towards next year’s return.
Ask CRA to Waive the Penalty. It never hurts to ask CRA to waive the 1% per month penalty, they may approve your request if your excess contribution was due to a reasonable error and you have withdrawn or are in the process of withdrawing the excess contribution. To make your request fill out form RC4288 or write a letter to CRA explaining how and why the error was a reasonable mistake and the steps you have taken to eliminate the excess contributions. Include a transaction report showing the withdrawal from your RRSP.
RRSP Contribution was a Gift. If you received an RRSP contribution as a gift or have contributed to your spouse’s RRSP without claiming a tax deduction; CRA may assess your unused contribution room as a negative amount. In this case you may have to submit form ‘T1-OVP Individual Tax Return for RRSP Excess Contribution’. CRA has a T1-OVP quiz to help you determine if this is the form your need. If it is complete the form and send to CRA with any tax owing right away. Payments are due within 90 days after the end of the tax year. Starting on day 91 CRA charges compound daily interest on unpaid tax or penalties, a late filing penalty of 5% of the balance owing and 1% of the balance for every month the return is late.
File your Return. If you paid withholding tax on your withdrawal you will need to fill out form ‘T746 Calculating Your Deduction for Refund of Unused RRSP Contributions’. Enter the amount on Line 11 of the T746 on Line 232 of your return. Also write the amount in Box 20 of your T4RSP slip and on Line 129 of your return. Submit both the T746 and T4RSP with your return. If you didn’t pay withholding tax and have already filed the T1-OVP, simply complete your return as usual.
As always, I recommend you use a qualified professional to help with financial matters; including the preparation of your tax return. I don’t prepare tax returns myself, but if you need a name of a good accountant don’t hesitate to give me a call.
Have a great weekend,
Tracey
Source: Original article posted on Advisor.ca by Staff 04-17-17
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