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I cashed out my RRSP to fund a startup venture. The RRSP value was significant, $100k. It now appears that the startup venture may not proceed. Can I put the money back into an RRSP with minimal penalty or am I screwed?

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    How much RRSP contribution room do you have left? Jan 22, 2018 at 17:22

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No, unfortunately withdrawals from an RRSP cannot be returned on a tax deferred basis, outside of 2 specific exceptions:

  • Money taken out for purchasing your first home (exceptions and limits apply); or

  • Money taken out to cover medical costs (exceptions and limits apply).

What you may be able to do is make an additional contribution to your RRSP, out of the money you have already withdrawn. RRSP contributions are made on the basis of a % of your income earned in Canada, and the CRA assesses what your available balance is at the end of every year when you file your tax return. You can look at your tax return from last year to see how much room you still have available.

If you have minimal room left in your RRSP, you may want to consider putting it in a TFSA account, which does not create a tax deduction, but all income earned there is completely non-taxable.

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  • OK, so to put the money back into an RRSP what penalties am I on the hook for? The withheld amount (30%) and on top of that the difference in income tax I will owe? For a TFSA, is there not a limit to what I can contribute in a year? or can I put the full amount into one right away?
    – Dag77
    Jan 22, 2018 at 14:59
  • @Dag77 Unfortunately you will not be able to recontribute those amounts to your RRSP, period. You can only contribute additional amounts as you earn additional income [ie: on the basis of earning additional RRSP room each year]. The penalty for overcontributing is a punative 1% each month until the amounts are corrected - ie: it costs you 12% / year. canada.ca/en/revenue-agency/services/tax/individuals/topics/… Jan 22, 2018 at 15:00
  • @Dag77 As for TFSA - check your last notice of assessment; it should have your current TFSA room listed on it. Jan 22, 2018 at 15:01
  • @Dag77 Whatever amount you are able to contribute back into your RRSP -- provided you have sufficient unused RRSP contribution room available -- should provide a deduction to offset some of what was withdrawn in the first place. You would lose the contribution room, but a re-deposit should negate the tax impact of the same amount of money withdrawn. Jan 23, 2018 at 1:26
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Grade 'Eh' Bacon gives the correct answer, and what I am writing here will not help you as it is too late. However future readers might find it helpful.

RRSPs can be put in a wide variety of investments, including equities. You could in principle have invested your RRSP funds in your startup, while keeping it in the RRSP. Start reading around "self-directed RRSP".

There has to be at least some arms length relationship between the RRSP and you, and you will have to convince the CRA that this is not some trick to let you have access to your RRSP funds while pretending to keep them in the plan. I would very strongly advise you to get professional advice before doing this. And don't forget that putting all your retirement funds into something as uncertain as a startup is an extremely high risk venture, made worse by the fact that if the startup goes belly-up you will be left without a job AND without retirement funds.

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  • fascinating stuff ....
    – Fattie
    Jan 25, 2018 at 0:02

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