RRSP excess contributions are contributions made to your registered retirement savings plan that exceed your annual contribution limit by more than $2,000. The Canada Revenue Agency charges a penalty on excess contributions, and you cannot deduct them from your taxable income.

Understanding RRSP Contribution Limits

Essentially, your RRSP contribution limit is the lesser of 18 percent of your earned income or the annual contribution maximum set by the CRA. The maximum contribution limit earned is set each year ($26,500 in 2019), but if you have unused allowances from previous years, your annual contribution may exceed that amount.

For example, if you were eligible to contribute money to your RRSP during previous years but did not do so, the unused allowances from previous years are added to your current year’s limit. If your earned income changes, your contribution limit also changes.

Money contributed to pooled registered pension plans or simplified pension plans also count toward your RRSP contribution limit, but transfers between pension plans do not count against your limit.

Determining Your RRSP Deduction Limit

  • If you are a CRA My Account holder, you can easily access your RRSP contribution via the online portal. You may also view past contributions and limits as well as receipts for your past year’s contributions.
  • If you are not a CRA My Account holder, refer to your latest Notice of Assessment. You can find your RRSP contribution limit on line A of that notice. If your limit changes, the CRA sends you a T1028 form that shows your new limit.

Penalties for Excess Contributions

Contributions to an RRSP are not subject to income tax. If you over-contribute $2,000 or less to your RRSP, you cannot deduct those excess contributions from your taxable income, but you are not charged a penalty on those contributions either. Excess contributions over the $2,000 mark, however, are charged a penalty.

The penalty is the equivalent of a 1 percent tax per month on excess contributions. If you file your taxes late, the penalty increases.

Penalties for Late Tax Payments

Excess RRSP contributions must be reported 90 days after the last day of the tax year when you over-contributed. Returns filed after that deadline are subjected to an additional penalty equal to 5 percent of the taxes you owe plus an extra 1 percent surcharge for every month. After a year, daily compound interest is added to late payments.

If you admit that you forgot to file your taxes and you file them late under the voluntary disclosure program, you can avoid the penalties. Instead, you just pay the extra tax you owe.

Avoiding Penalty for RRSP Excess Contributions

If you do not want to pay a penalty for excess RRSP contributions, contact the CRA and explain why you over-contributed to your RRSP. If you can prove that the excess contributions were the result of a reasonable error and that you are taking steps to rectify the situation, you may not be assessed the penalty.

For example, if you made excess contributions, you can avoid the penalty by withdrawing your excess contributions from your RRSP. Send a letter to the CRA explaining the mistake along with a form showing the date when you removed the excess funds, and remember to declare the withdrawn funds as income.