Avoiding RRSP Over-Contributions
You are not alone if you find yourself staring blankly at the your CRA Notice of Assessment trying to simply figure out your RRSP contribution room, how much you can deduct and if you accidentally over-contributed. This is an overview of how to read and interpret the RRSP Deduction Limit Statement that CRA sends you after you file your taxes.
Here is a sample of an RRSP deduction limit statement for 2017:
For more information about the details listed below or how employer contributions to a PRPP or group RRSP will affect your contribution room for the year, go to https://www.canada.ca/en/revenue-agency/services/tax/ individuals/topics/rrsps-related-plans.html or refer to Guide T4040, RRSPs and Other Registered Plans for Retirement.
Description ($) Amount
RRSP deduction limit for 2017 $20,007
Minus: Employer’s PRPP contributions for 2017 $0
Minus: Allowable RRSP/PRPP contributions deducted in 2017 $11,007
Plus: 18% of 2017 earned income, up to a maximum of $26,230 $26,230
Minus: 2017 pension adjustment $13,640
Minus: 2018 net past service pension adjustment $0
Plus: 2018 pension adjustment reversal $2,300
2018 RRSP/PRPP deduction limit (A). $23,890
Minus: Unused RRSP/PRPP contributions previously reported $0
and available to deduct in 2018 (B). $3,500
Available contribution room for 2018. $20,390
Note: If your available contribution room is a negative amount (shown in brackets),
you have no contribution room available for 2018 and may have over-contributed
to your RRSP/PRPP. If this is the case, you may have to pay tax on any excess
contributions.
How Much Can You Contribute to Your RRSP?
The maximum amount you can contribute to your RRSP is equal to (A) – (B) + $2,000 where:
(A) is your RRSP deduction limit for 2018;
(B) is your unused RRSP contributions; and $2,000 is the cumulative lifetime allowable amount of over-contribution you can make without being subject to penalty tax.
Based on the sample statement, you could contribute $22,390 ($23,890 – $3,500 + $2,000) to your RRSP. If you want to deduct this contribution on your next tax return, you need to make the contribution by the RRSP deadline of March 1st.
How Much Can You Deduct on Your Tax Return?
The amount you can deduct for 2018 is shown on the sample statement as your 2018 RRSP deduction limit next to the letter (A). CRA calculates your deduction limit based on the prior year’s tax return plus any unused RRSP room carried forward from previous years.
Your RRSP deduction limit is based in part on your earned income, including net income from employment, business and rentals, but not investment income.
Also, your RRSP deduction limit will be reduced by Pension Adjustments (PAs) calculated by your employer. For example:
If you or your employer contribute to a Registered Pension Plan, your employer will report a current year PA on your T4/T4A slip and this PA will reduce your RRSP contribution room for the following year.
Have You Over-contributed to your RRSP?
To determine if you have over-contributed to your RRSP, find the amount next to the letter (B) on the sample statement. This amount represents your unused contributions, which are also known as undeducted contributions.
This means that you made RRSP contributions in previous years, or in the first 60 days of the current year and did not deduct them on a prior year income tax return.
Based on the information from the sample statement, you contributed $3,500 in previous years that you did not deduct for income tax purposes.
Comparing amount (B) to amount (A) will reveal if you over-contributed:
If (B) – (A) is less than or equal to $0, then you have not over-contributed to your RRSP. This means you still have additional room to make contributions to your RRSP. This additional room is equal to (A) – (B) + $2,000.
If (B) – (A) is greater than $0 but less than $2,000, then you are within the allowable over-contribution limit. This assumes you have not yet made your cumulative lifetime total over-contribution of $2,000. The $2,000 over-contribution amount grows tax-deferred in your RRSP, but this over-contribution amount is not deductible.
If (B) – (A) is greater than $2,000, then you have over-contributed to your RRSP and are incurring a penalty. Over-contributions in excess of $2,000 are subject to a 1% per month penalty calculated from the month you first exceeded your contribution limit. The penalty will continue to apply until the month you remove the excess or until new contribution room that is enough to absorb the over-contribution amount on January 1st of the following year. If you are in an over-contribution position, you should notify a tax advisor to discuss your options and ensure that the right forms are completed and submitted in a timely fashion.
What if You Cannot Find Your Notice of Assessment?
If you are unable to locate your NOA, you can contact CRA directly by phone to learn your RRSP contribution or go to the “My Account” page of the Government of Canada CRA website.
