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RRSP excess contribution

A client contributed almost $4k over the limit and I understand the max allowed excess is $2k. I’m carrying forward excess amount. He also has RRSP contribution slip for $1k which he withheld last year (contributed during Jan-Feb18=Year 2017). Two questions:

  • how actively CRA monitors excess contributions and penalizes the account?
  • for $1k contribution in 2017, shall I revise the year 2017 or can claim in 2018 and carryforward to next year?

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If you do nothing eventually CRA will catch up and assess penalties and interest. In some cases it might take several years. Doing nothing is not recommended. Do the T1OVP and fix everything now. Your client will pay less in the long run.

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A professional accountant is not permitted by the code of ethics to advise a client to break the law.
The accountant should ensure that he/she extensively documents that the client has been informed what they have done to contravene the income tax act, what the client should lawfully do to fix it.

Your question is analogous to saying: “My client has committed armed robbery of a bank and killed someone in the process. I don’t want to tell him to turn himself in. If I tell him to go and hide out in a cabin in the woods, what are the chances of the RCMP finding him there?”

I believe that CRA will eventually catch up with all or most of these over-contributions. I’d make sure I advised the client to deal
with it immediately and ensure I have documentary evidence that I so advised them.

Now that we have AFR I’m assuming that the instances of these over-contributions will reduce.

Gay Wise

gaywise@wisefinancialservices.ca

250-743-5999

1757 Shawnigan Mill Bay Road

Shawnigan Lake, BC, Canada

V0R 2W0

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woh… there is a clear difference between a robbery (illegal) versus non-compliance. There is no way excess contribution can be hid.
My other question was if Jan-Feb 2018 contribution should be reported by revising 2017? Or can be added as an unused amount for 2018?

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So you don’t mind the illegal theft (of the penalty tax on the excess) from the Minister, but your ethics causes you to mind about the illegal theft from Banks?

Some kinds of illegal thefts are OK, and others are not?
I must have missed that in the latest mandatory Code Of Ethics provincial update…

Perhaps this afternoon I will drive down the highway at 250kmh, just for fun… after all, its only “non-compliance” with the Motor Vehicle Act, not illegal, so the traffic cops shouldn’t mind… and anyway, I could probably out-run them…

This is your choice to touch that speed limit, I cannot stop you :slight_smile:
I can only advise you to drive safe and not to be run over as no other driver on the highway abiding by 100km. At times, going over the prescribed speed limit is judged by tolerance level.
Nice chatting…

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You have to file a T1 adjustment to the 2017 return adding it to the RRSP, but usually I do not claim it in 2017. If you do not use it in 2017, it is available for 2018.

John

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This is a relatively simple issue to resolve (without all the drama)

Complete the T1-OVP and have your client take it to his financial advisor (or bank if that’s where he does his contribution) and have them withdraw the excess asap.

The sooner the fix is implemented, the less likely there will be a fine, and if there is, it is minimized by taking action before CRA catches up to it.

And for the record, breaking the law, including the Income Tax Act, is NEVER okay.

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Could you please reduce the size of your signature? This is a “help each other out” forum, not an advertising venue.

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This seems to happen when people answer from their email, I wonder if there is some software way to fix it?

The technically correct way to do it is to amend last year and then file this year. I have found in practice this is confusing for CRA, but they do eventually sort it out.

They now track RRSP contributions quite closely, where as I have in the past found errors before they did, I recently had a case where the prior accountant missed a contribution in 2010, and the client ended up with 9 years of T1-OVPs to file.

Better a bit of confusion now than 9 years of 1%/month!

Here is CRAs info on how to withdraw the undeducted over contributions:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/making-withdrawals/withdrawing-unused-contributions.html

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I also have had two clients

One was fined big time, and then although he never got an RRSP deduction was tax on the withdrawal, We are in the appeal process to reverse the tax paid on withdrawal.

see the following link

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/contributing-a-rrsp-prpp/what-happens-you-over-your-rrsp-prpp-deduction-limit.html

Be careful how he withdraws the money.

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