RRSP contributions exceeds RRSP deduction limit

Tax Topics
1

Client contributed $30,000 to RRSPs (in 2023 and first 60 days of 2024)
Required repayment as per Home buyers plan statement is $2,000

RRSP contributions available for deduction: $28,000
Maximum RRSP deduction per NOA: $19,000

$9,000 will be in their undeducted RRSP contributions that will be carried forward.

Other than the bolded sentence above is there anything else to consider/address?

2

I suppose I might be asking myself if the client’s RRSP limit for 2024 is at least 7,000 and if not whether I might want to allocate more than 2,000 as a HBP repayment for 2023 in order to avoid the over contribution tax levied by subsection 204.1(2.1) or having to complete the dreaded T1-OVP.

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3

Situation depends on how much of the 30,000 was contributed in 2023, and how much of it in first 60 days of 2024. The portion contributed in 2024 can be not used on this tax return and automatically carried forward to 2024 return. For argument sake, let’s say only 5K was in 2024. Then:

RRSP Deduction limit: 19,000
Buffer. : 2,000
Amount for HBP :4,000

This will prevent you from having to fill out T1-OVP and pay tax. Simply apply more than the minimum to HBP.

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4

That is not correct.

It does matter when the contributions are made. IF the March-DEC contributions are 19,000 or less they would not be over contributed until at least Jan. AND if his new limit based on 2023 income is greater than 7,000 then you are not over contributed at all.

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5

Actual numbers:

$48k - 2023 RRSP deduction limit

RRSP contributions

  • $15k (March – Dec 2023)
  • $45k (First 60 days of 2024)

Home buyers’ plan

  • $2300 - Designated HBP repayments
  • $30k - Home buyers’ plan current balance

Net RRSP contributions $57,700 ([$15k + $45k] - $2300)

2024 RRSP contribution limit

  • $31,560 (18% of earned income to a max of $31,560 - 2023 earned income is over $200k)

In conclusion:

  • Max RRSP deduction for 2023 $48k
  • RRSP contributions available for deduction $57,700 ($60k - $2300)
  • Undeducted RRSP contributions that will be carried forward $9700

What would be the best direction to take this?

6

Personally, I’d start with looking at: how much over 200K the 2023 income is (i.e. marginal rate) and discuss with client re: do they expect it will be similar or more for 2024/going forward…

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7

Forward? :smiley:

Seriously; I suppose you need to discuss with your client, and make a professional judgment as to whether it would be better to accelerate repayment of their HBP to get that out of the way as quick as possible or defer the RRSP claim until next year.

If they expect to be able to make a 31,560 RRSP contribution next year then they might want to get the HBP paid down.

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8

I really appreciate everyones replies - have a wonderful weekend!