What to do about an RRSP Overcontribution

Zoomer | January 1st, 2006

Question: I have a question concerning overcontributions to my RRSP. I’m fully caught up as of Feb 29 2000. On March 7, I contributed $20,000 into my RRSP trading account and will claim the maximum of $13,500 on next year’s return (my income allows that). The fact that my RRSP account will show a $6,500 overcontribution, even though I haven’t claimed it for tax purposes concerns me. I’m well aware of the $2,000 overcontribution limit, but I’m wondering on what basis is that $2,000 calculated: i) what I report on my tax return, or ii) what my brokerage firm reports to RevCan?

If, for example, I withdraw some or all of that overcontribution, will RevCan consider that a taxable withdrawal, or will they see that I have $6,500 in my RRSP account that isn’t really eligible, since I haven’t claimed it as a contribution. 

Gordon Pape answer: The $2,000 is a lifetime cumulative amount. You are in excess of it by $4,500. This will come to light when you file your 2000 tax return with the contribution statement from the brokerage house.

Under the law, the excess contribution will attract a penalty of 1% a month until it is withdra. I suggest the best way around this problem is to immediately contact the company that administers your RRSP, explain the situation, and arrange to pull out the excess amount before month-end. It will take some paperwork, but they should be able to handle that for you without incurring any tax liability.