The cost of exceeding your allowable RRSP contribution

Under the Income Tax Act, contributions to an RRSP that exceed your RRSP/PRPP deduction limit by more than $2,000 can result in harsh penalties. Generally, the taxpayer will be subject to a tax of 1% per month on the excess amount until the excess amount is withdrawn from the RRSP.

In situations where a taxpayer is required to pay this 1% tax, they should complete a Tl-OVP Individual Tax Return for RRSP Excess Contributions form. This form is due no later than 90 days after the end of the tax year. As evidenced by the case of Hall v The Queen (2016 TCC 221), the CRA has the ability to assess a taxpayer beyond the three year "normal reassessment period". In this case, the taxpayer was assessed penalties and interest of $4,956 for not filing the Tl-OVP returns from 2008 to 2013. The taxpayer did not deny the fact that he had over-contributed to his RRSP since 2008, however he argued the 2008 through 2011 years should be statute-barred. The CRA argued that there is no time limit to assess a taxpayer when a return has not been filed. The judge agreed with the CRA and indicated that the Income Tax Act does not provide any time limit for the Minister to conduct an original assessment. 

 

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Durand and Associates recently supported me during an Ontario Ministry of Finance Tobacco Tax Audit. They prepared a response to a proposed assessment, negotiated on my behalf and argued with the Ministry concerning the lack of transparency and fairness in their audit process. The result of their efforts was a significant reduction from the initial proposed assessment by the Ministry of Finance.

Steven Hines, President - Distant Shores Trading Company Inc.