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I recently, successfully, helped a client who had an RRSP overcontribution in excess of $100,000 obtain a waiver of some very hefty penalties  (Ed: He means to say excessive). If you have overcontributed to your RRSP, you’re subject to a 1% per month penalty on the overcontribution. In a situation like this, it could be $1,000 per month until the overcontribution in removed. If you don’t realize it, this could go on for a while as the CRA is generally slow to inform taxpayers and it can be a couple of years before they get the first notional (Ed: arbitrary) assessment of the T1OVP. By that point, there is very little that can be done other than prepare and submit their own T1OVP forms, and hopefully reduce the balance owing. Getting absolute relief is a very high bar.

The T1OVP is how you determine and report the amount of penalty owing, and it is not the easiest form to follow or complete, especially in cases where the overcontribution has been going on for several years. Unlike a personal return, the T1OVP is due 90 days after then of calendar year, which is to say March 31 in non-leap years, and March 30 in leap years. So, time is of the essence in recognizing the overcontribution, filing the return, and requesting relief.

For the taxpayer, the overcontribution was withdrawn, I filed the T1OVP as required by the deadline, and requested relief from the Minister. The return was assessed but the decision about relief was in process. While waiting for the decision, and after a chat with Bhuvana Rai (who I recommend highly if you need a tax lawyer or want to subscribe to her Substack), I filed an objection to protect the taxpayer’s rights. It was the objection, and not the initial waiver request which allowed the penalties to be waived ($10,000). Put one in the win column.

It was a bumpy ride to get here though.

As a surprise resolution to a long-standing pension transfer fight, the taxpayer’s former employer had sent the money to the RRSP directly, and without confirming that that there was sufficient room. These payments were included on a T4A and sent directly to his RRSP. This was outlined in the letter to the fund company.

When I was engaged in December 2021, I advised them to pull the money out by the end of the year as an RRSP withdrawal and subject to the lumpsum withholdings. We would sort things out on the T1 by not claiming the RRSP deduction and filing the T746. The overcontribution to the RRSP on the T4A had no source deductions, so this worked out nicely as the tax withheld on the T4RSP would offset the income on the T4A, and the other deduction on for the RRSP withdrawal offset the T4RSP. We could have filed a T3012 to have the RRSP withdrawn without tax holdings, but that takes several months, and requires forms to be passed back and forth as approval is granted by the CRA. Again, time is of the essence.

It’s important to note that when you claim this deduction, and file the T746, there is a 100% chance that the CRA will issue a post-assessment review, so it’s important to have all of the RRSP statements for the year, which shows the money into and out of the account, as well as the RRSP contribution receipts. Accountants, if you’re doing all this work for the T1OVP, then that working paper should suffice for the review. The review passed with flying colours (Ed: was chuffed).

In my cover letter for the T1OVP, I requested that the penalty be waived. The CRA acknowledged the waiver request in June 2022, and assessed the T1OVP in early July. As we came to the 90-day deadline, I filed a Notice of Objection, citing ITA 204.1(4) which allows the Minister to waive the penalties where the overcontribution is due to reasonable error, and reasonable steps are being taken to correct it. I included the same documentation I sent for the T1OVP. The basis for the objection was that initial waiver request was pending and the objection was being filed to protect the taxpayers rights. The initial request for relief was denied in early November, and pending the outcome of the objection, the client was considering a second review of the waiver. So, we waited.

Beyond the objection, and second review of the waiver, the client could have proceeded to the Tax Court of Canada and self-represented under the Informal Process

The day before the strike, the objection was assigned (Ed: I do like the CRA progress tracker) and the appeals agent reached out to me for some additional information. In this case, the actual RRSP contribution slips to confirm the contributions weren’t a transfer under ITA 60(L)). When they came back from the strike, we had a good chat about how the overcontribution was not due to the taxpayer (reasonable error), and we corrected the overcontribution by the end of the year (reasonable steps).  

Specifically, we had a discussion about Connolly v Canada 2019 RCA 161 which deals with relief from the Part X.I RRSP, PRPP, and SPP Execess Contribution Tax. In this case, Connolly was requesting relief for overcontributions over several years after receiving notional assessments by the CRA. In my case, the taxpayer differed from the facts as they had dealt with the overcontribution within the year, and had not waited to be assessed by the Minister. For Connolly, it was a lack of due diligence by the taxpayer which sunk the case. It was not, despite the judge’s comments, CRA’s overly extreme and narrow interpretation of what constitutes reasonable error or reasonable steps. The appeals agent then had some internal discussions with the T1OVP waivers department, and agreed to complete a second level review, and allow the waiver request. This was great news! Especially since there was an inconsequential reassessment of the T1OVP in December, which invalidated the October objection to the July assessment.

We’ve since received written confirmation that the waiver request has been granted. Chalk up one in the win column.

To summarise dealing with an overcontribution:

1. Stop contributing.
2. Take out the excess ASAP. Don’t worry about pulling it out without source deductions.
3. It’s important to understand, and be able to communicate how the ins and outs of the income will work,
4. There will be a follow up from the CRA when you file the T746.
5. Get the RRSP statements for the year so you can see on a month-by-month basis what was contributed and when. The CRA will assume everything was contributed in March, and withdrawn in December (Ed: They would have been right in this case).
6. File the T1OVP on time.
7. I requested the waiver in my cover letter, but if you’re filing separately, you’ll use RC2503 Request for Waiver or Cancellation of Part X.1 Tax - RRSP, PRPP and SPP Excess Contribution Tax
8. Consider if you need to file an objection to protect the taxpayer’s rights. This will often get you to someone who specializes in this specific area of the ITA.

Please note that this only touches on a T1OVP overcontribution. TFSA overcontributions are a separate beast, but should be removed immediately, and no contributions should be made by a non-resident.

If you’re overcontributed, and need help at all levels of dealing with this, Book a meeting and we can chat.