I am reviewing a 2023 T1 where the taxpayer had an RRSP limit 2023 of $32,722.
The RRSP contribution was $35,281.01 in the first 60 days of 2024 AND the new RRSP limit for 2024 is $31,560.
The diagnostic that the client may need to file a T1-OVP appears because the contributions > 2023 limit by $2,559.01.
This diagnostic should not appear in this case because the excess was created in 2024, and this has not exceeded the limit. The $2,559.01 will reduce the 35,560 to $29,000.99.
Could this calculation not be added to the program to avoid the diagnostic from appearing?
I think itâs because the program automatically assumes that any contribution made in the first 60 days of a year will be use as the RRSP contribution for the prior year. In this case the client doesnât have sufficient contribution room.
You would have to manually change the amount claimed such that it doesnât exceed the clientâs contribution limit. The remainder would carryover and could be claimed on 2024âs return.
I disagree. The RRSP contribution limit was never exceeded.
The beginning room for 2023 = $32,722. The contribution in the first 60 days applied to 2023 = $35,281.01. The max contribution is $32,722 and so there is an unused of $2559.01.
BUT
That $2559.01 arose in 2024, not 2023.
The new RRSP limit for 2024 is $35,560, leaving $29,000.99 available for 2024.
Nothing has been exceeded because the contribution occurred in 2024 and did not exceed the contribution 2024 limit.
You are correct. And as to your question it might be nice that that reveiw message does not come up in these situations. I suspect that the program looks at the total RRSP contribution available to 2023 when generating that review message and not distinguishing between 2023 and 2024 purchase dates.
itâs a matter of timing as to when the contributions are attributed to the contribution room and when the new contribution room is created that is at issue here.
The maximum contribution amount for 2024 is 31,560 which is less than the 35,560 calculated by the program so that tells me that the 35,560 includes the 32,722 from 2023 plus whatever room was created in 2023, however the room created in 2023 can only be used for contributions made in 2024.
The contributions made in the first 60 days of 2024 can and are therefore automatically attributed to 2023âs contributions but that would put him over the contribution room for 2023.
The excess must be overridden in the program and removed from the total contributions and held back for use on 2024âs return.
To be a bit fair to Taxcycle the review message says âMAY be over contributedâ however the program has all the data to determine that there is no over contribution.
The crux of my concern is that the diagnostic should be two separate diagnostics:
First = Did the client exceed the 2023 RRSP limit and must file a T1-OVP for 2023?
If the contributions made from March to December exceed the RRSP limit less the undeducted carryforward, then a T1-OVP may be needed.
Second = Is the undeducted carryforward to 2024 more than the 2024 RRSP limit. If this is the case, they have t withdraw an excess.
Making the diagnostics read this was will make it clearer which issue to resolve.
Understand your statement, but as a tax preparation professional you should be able to quickly see the diagnostic and make appropriate changes as need be.
Sometimes, it is not in the best interest of the client to deduct ALL of the RRSP contributions in a particular year⌠I review this on ALL my files manually as I prepare it only takes a few minutes.
Quality over quantity at my small one person firm. I personally like that I have control and Do Not want or need further review messages.
I do not want a system that completely thinks for me as that in the long run puts me out of business.
If you continue with this logic, you might as well get rid of all review messages. Because if one extra one does that, why not the others?
But it wouldnât put you out of business. Nobody is going to buy TaxCycle to do one tax return. They will use other products for that. This is a product for tax preparers.
I for one thing the review and diagnostic messages make the product great. All the information is there, why not use it?
in this case if the full amount contributed in the first 60 is claimed, then they have overcontributed.
If itâs not claimed and therefore carried over to claim on 2024âs return, then there shouldnât be a problem because the amount was contributed in 2024 and will be absorbed in the contribution room created for 2024.
Again, it comes down to a matter of timing. Did the room exist in the period (year) that the contribution is being claimed?
Not against review messages at allâŚthey are very helpful.
I feel the current message regarding rrsp is sufficient.
You canât expect the programmers to create review messages for every possible scenario. At some point, as a tax professional you have to rely on your knowledge and apply it.
They can only âclaimâ up to their deduction limit, but they should âreportâ all contributions made in the remainder of the year AND in the first 60 days of the next year.
There is no over contribution for the reported contributions in the first 60 days and the CRA has no problem with those reported contributions.