I find the T1-OVP forms very tricky, especially when I the over contributions span multiple years.
To make things easier to understand, I create an RRSP reconciliation and continuity spreadsheet starting from the last year in which the RRSP contribution was within the allowable room:-
1 - Tax Year
2 - RRSP room
3 - Contribution Mar to Dec
4 - Contribution Jan to Feb
5 - Total Contribution
6 - Amount Claimed
7 - Over/ Under
I use this spreadsheet as my source document for completing the T1-OVP as well as a talking point with my client. I prepare this for each and every year that they are over their RRSP limit.
Then I explain to the client to COST in terms of penalties for over contributing and suggest that they use a TFSA as the tax sheltered investment vehicle for an amounts in excess of the RRSP contribution room.
I find that it is often a case of misunderstanding or confusion on the part of the tax client. Sometimes I see a light bulb of understanding switch on. Those times are wonderful.
Other times I simply help them understand what they did and the penalty that they incurred as a result and ask them if they would like my help in avoiding such a penalty in the future. That is the best that I feel that I can do in such a circumstance.
Sometimes an over-contribution is simply a mistake. For example one client did not understand how a “SPOUSAL CONTRIBUTION” worked so he kept giving his wife the money so that she would make her own contribution even though she had no contribution room.
Often it is because the whole topic of tax and tax planning is confusing and overwhelming.
Very often I find that the unsophisticated taxpayers who are numbers challenged simply can not understand the tax implications of an RRSP vs a TFSA vs RDSP vs an unregistered investment plan.
Usually, it is because someone, a friend or a family member, the news, or an investment specialist, told them something that they only partially understood. As a result, they feel overwhelmed and afraid to make a mistake so they simply play ostrich and take the path that feels the safest to them because they feel unable to understand how to make a logical choice themselves. If putting money into an RRSP is good, then surely putting more in must be better. I find that some of these clients develop skills and understanding in teeny chunks, over time, with gentle and positive reinforcement. Someone early in their life made them feel stupid about numbers and they never found a way to get over that up to that point. So their brain freezes when they see too many numbers. I think that it is my job to speak simply and clearly to whatever degree they are open to understand at that time.