I have a client who made a contribution in the first 60 days of 2022 that put them overcontributed by $2,875 after also factoring in the earned income RRSP deduction limit bump. So they are overcontributed by $875 after the $2,000 buffer. I know we have to prepare a T1-OVP to pay the Part X.1 tax and a T3012A to get the overcontribution amount out tax-free. I’ve done this a handful of times in the past but it was usually a while after the fact, not right away after the T1 was prepared.
I want to minimize the Part X.1 tax my client has to pay by getting everything filed ASAP but there is no 2022 T1-OVP form available (in TaxCycle or CRA).
How does this work in this scenario?
I would have thought the process would be as follows:
March 2022 - Notice the overcontribution and prepare T3012A to get the overcontribution out tax-free.
April 2022 (hopefully, but not likely) - CRA approves the T3012A and we get the bank to take the funds out.
Feb-April 2023 - Prepare the 2022 T1-OVP and pay the Part X.1 tax.
That seems very straight forward. However, nowhere on the T1-OVP is there a space to input RRSP withdrawals under a T3012A agreement.
I estimated the total tax even if he didn’t take anything out to be only $104. The problem is, he won’t have any earned income to boost his deduction limit for the next few years (he quit his jobs and started his own business and will be living off of savings for the next couple of years). Otherwise, I’d say just leave the money in there, pay the Part X.1 tax and then it goes away on January 1, 2023.
Does anyone have any ideas or has anyone dealt with this before?
Is there a way to carry forward the over contribution amount to 2022, provided the 2022 RSP room will be at least 18% of 2021 earned income to max $29k?
After some discussion, it turns out he has roughly $10k of employment income in early 2022 so that will increase his room effective Jan 1, 2023. So he’s just going to eat the $104 of Part X.1 tax and we will file the T1OVP this time next year.
He told me on our call earlier today that he wouldn’t have any earned income for 2022 but he forgot about a bonus payout he received in January.
The overpayment will carry forward to 2022, and because the overpayment was made in 2022, it can be used as a 2022 contribution - so no overpayment. If you look on the T1OVP form it doesn’t take the Jan/Feb 2022 contribution into the 2021 OVP. That’s my recollection from the last time I stumbled through that form.
Thanks. I was aware of that. That’s what I meant when I said “ after also factoring in the earned income RRSP deduction limit bump.” I should have been more clear. He is over contributed as of January 2022 after factoring in his 2022 RRSP room increase from 2021 earned income.
But it’s fine. It’s only $775 for January and $875 for February and onward so he’s going to leave it, pay the $104 of tax next year and the over contribution will go away after 2022 earned income increase his deduction limit some more.
This is the first time I am preparing T1-OVP for my client. I want to know the process of filing this form. Do we have to mail this separately or will this be filed along with T1 for this year.
The T4040 guide says to mail it to your local tax centre with the payment amount enclosed. That said, I’m sure you could pay the tax using online banking as well to the 2021 Individual Income Tax Account but I’m not 100% on that. You could call the CRA RRSP line to ask.