Over-contributions to TFSA and RRSP
Excess contributions to registered plans such as RRSP, TFSA, PRPP and SPP can lead to penalty taxes. You can confirm your RRSP or TFSA contribution room by accessing the CRA’s My Account or contacting CRA directly to request a Room Statement or Transaction Summary.
Over-contributions to RRSP
The penalty for RRSP over-contributions is 1 per cent per month for each month you are over the limit. A $2,000 grace amount is allowed for over-contributions. However, that amount is not tax deductible.
If you have over-contributed to your RRSP, you can
immediately withdraw the excess amount. If you do that, the tax will be payable for the month(s) in which there is an excess, but future taxes would cease. If you meet the conditions on the withdrawal, you can apply to waive the withholding tax.
pay the penalty tax until new contribution room becomes available the following year. You must file a T1-OVP tax return to calculate the amount and send it to the CRA, along with your payment. Pay the tax within 90 days after the calendar year to avoid late-filing penalties or interest.
Over-contributions to TFSA
TFSA over-contributions penalties are also 1 per cent per month for each month you are over the limit, based on the highest excess amount for the month. Unlike RRSPs, there is no $2,000 grace amount.
If you have over-contributed to your TFSA, you can
immediately withdraw the excess amount
pay the penalty tax until new contribution room becomes available the following year. You must file a special TFSA return to calculate and report the taxes. The return must be filed by June 30 of the following year, and any taxes owed must be paid by that date. If the return is filed late, additional penalties and interest may apply.
Penalty Relief
It is recommended that you speak to a professional regarding possible penalty relief and its application. If certain conditions are met, the penalty can be waived.
If you have any questions or comments about this blog post, please feel free to contact us.
Disclosure
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