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What Happens When You Over-contribute to Your RRSP

With close to six million contributors and $37.4 billion in contributions reported in 2013 by Statistics Canada, the RRSP is undoubtedly the retirement savings vehicle of choice for Canadians. Yet the rules that surround contributions, withdrawals and penalties are tricky to navigate.

If you find yourself having over-contributed to your RRSP, here are the steps you need to take to set things right.

How much can I contribute to my RRSP?

The amount that can be contributed to a RRSP is determined by the deduction limit, also known as the “contribution room.” This deduction limit available in your RRSP is on your notice of assessment and online via My Account on the Canada Revenue Agency (CRA) website.

How do I know if I’ve over-contributed?

You have over-contributed to your RRSP if unused contributions from prior years plus your current calendar year contributions are greater than your RRSP deduction limit plus $2,000.

The government provides a $2,000 cushion to accommodate for unintended contributions that exceed the maximum deduction limit. While you’re not penalized for up to $2,000 over the contribution room, you cannot claim a tax deduction on the excess amount.

It’s your responsibility to determine if you have over-contributed to your RRSP and to report it to the CRA.


If you have over-contributed, you’ll have to pay a penalty tax of 1% on the amount that exceeds the deduction limit beyond the $2,000 buffer — per month.

What do I need to do if I have over-contributed?

If you have over-contributed to your RRSP, there are two ways to resolve the situation: settle the penalty tax or withdraw the excess contributions and ask the CRA to waive the penalty.

If you choose to pay the penalty tax, you’re required to report and pay the tax using a T1-OVP form. This form calculates the amount taxable and the tax payable.

It’s possible to have the CRA waive the 1% monthly penalty and applicable withholding taxes. To make a request, the CRA requires the submission of appropriate forms and a written letter that explains the following:

  • Reason for the excess contributions;
  • Why the over-contribution was an honest mistake; and
  • The steps you are taking/have taken to eliminate the excess contributions.

If you decide to withdraw excess contributions and apply for a waiver, you’ll need to submit adequate documentation as proof that excess funds have been removed from the RRSP.

You can withdraw over-contributions from an RRSP without triggering high withholding taxes by filing a T3012A form. If you remove funds from your RRSP without submitting this form, you’ll be charged a withholding tax of between 10% and 30%, depending on the amount withdrawn.

The form to request waiver of the 1% per month penalty tax is Form RC4288, Request for Taxpayer Relief.

The last word

Keep in mind that, like with all tax-related paperwork, time is of the essence. Payments are due within 90 days after the end of the tax year. On the 91st day, the CRA will begin to charge interest on unpaid taxes and penalties on top of a late filing penalty of 5% on the total balance outstanding and 1% on the total balance for every month the return is late.

Flickr: Alex Vakulenko