If you think the CRA will turn a blind eye to TFSA, RRSP over-contributions, think again
When you decide to contribute to your RRSP or TFSA, it’s important to stay on top of what has been added as well as what your contribution limits are for each year. This includes keeping track of any money from other sources like a company pension plan to ensure you stay within your limit. If a Canadian over-contributes, the CRA will apply a tax penalty at a rate of one percent per month. Additionally, if a Canadian citizen becomes a non-resident, after that they are no longer eligible to contribute to these accounts and will also be penalized. Once a non-resident Canadian moves to another country, their case can be further complicated by not receiving notices mailed by the CRA.
Key Takeaways:
- The penalty tax for over-contributions to a TFSA or RRSP is one percent per month for each month (or part of any month) the account has the excess funds in it.
- A separate, additional over-contribution tax of one percent per month is applied if a non-resident contributes to a RRSP or TFSA after becoming a non-resident of Canada.
- For each year, taxpayers have excess RRSP contributions the CRA will ask for an RRSP over contribution (T1-OVP) to be filed.
“While the tax man does have the ability to waive any over-contribution tax, penalties and arrears interest charged as a result of over-contributions, two cases demonstrate that the CRA shows little mercy when it comes to over-contributions.”