Carrying forward an RRSP over contribution to balance the account when the new contribution room becomes effective [duplicate]

Question

For year 2016 I had like $6000 contribution room. The company I work for has accumulated $9000 in an account (accumulated benefit for 4 years) and deposited the entire amount in February 2016 but after I maximized my contribution for 2015. That forces me to declare the $9000 entirely for 2016 and with that I am overcontributing with $3000.

Since we are now in 2017 and I have new contribution room in effect for this year do I have to withdraw the money? I understand that I will pay penalties for 2016 (which I might be able to waive if I write to CRA) but if I do not withdraw the $3000 in 2017 (because I have contribution room > $3000) will it count as overcontribution anymore or CRA will consider that I rebalanced and I will just have just $3k less contribution room for this year (2017) ?

Answer 1

If the $9000 was deposited in February 2016 then it must be declared on your 2015 taxes, not 2016. You never have a choice about when to declare a contribution - the only choice you have is when to claim it as a deduction (and it's very rarely a good idea to delay claiming it). You may want to take a look at your Notice of Assessment from tax year 2015 to see if the CRA noticed the error and adjusted your return for you - the text portion would usually mention any such adjustments. If you cannot find your NoA, it can be accessed by logging in to CRA's My Account service. If your 2015 RRSP contribution amount was not already adjusted for you, then this service is also a good way to request a change to your 2015 return.

Though most people don't realize it, you technically gain your contribution room based on the previous year's income on January 1st. It's just that you usually don't know your exact income until you get your T4. This means that on Jan 1, 2016 you received that $6000 room and thus despite being wrong about which tax year the $9000 is declared, you are still right about being over by $3000. You are allowed a little wiggle room on your limit, but only $2000, so you'll be charged 1% per month for every dollar in excess of $2000 over. On January 1 2017, you would have received more contribution room based on your 2016 income, and so as of then you are no longer over your limit. That should mean that your penalty applies for 11 months, for a total of $110. You can try calling the CRA to see if they will waive or reduce your penalty, on the grounds that you were unaware of your employer's deposit. Best of luck!

To answer your final question: yes, that 3K over-contribution will now basically just be reducing your available contribution room for 2017. Think of it as having -$3000 room left between February 2016 and Jan 2017, and then more room was added in January making that a positive number. So you don't need to withdraw or do anything further to fix things, other than paying your penalty or getting it waived.