RRSP overcontribution question

[Senk]

I'm working on my sister's tax return and I think her financial advisor might have screw up. Here's the scenario:

Her RRSP deduction limit for 2007 was $17,961

She was advised to make (and made) an RRSP contribution of $18,000 in January 2008.

She works for the federal government so she had a 2007 pension adjustment on her '07 T4 slip of $7,045. Her pension adjust will be at least that in 2008.

According to Ufile, her max RRSP deduction for 2008 is $3,252. (She made about $57k in 2007)

Based on the fact that her 2008 pension adjustment is going to be at least $4,000 higher than here 2008 deduction room, is she going to be subject to an overcontribution penalty?

[Ryan5459]

Hi Senk.

I made a similiar mistake the first year I started to make RRSP contributions. You can correct the error with a tax form. The CRA is usually okay with it if you just fill out the tax form and admit the mistake.

Does your sister have a notice of assessment from last year? Also - does she have saved up room from previous years?

[IMHIP2]

It doesn't appear she has overcontributed.

If her deduction limit for 2007 was $17,961 then she is able to contribute $17,961 to an RRSP in 2007. The deduction limit is a culmination of all previous years eligible amounts less pension adjustments less amounts contributed in those years. She is also allowed to over contribute (without penalty) by $2000 giving her a maximum contribution for 2007 of $19,961. The $18,000 contribution will totally use her deduction limit and $39 of the her $2,000 overcontribution allowance.

The pension adjustment is taken into consideration when the deduction limit is calculated. The 2007 pension adjustment of $7,045 has already been taken into consideration for the 2008 deduction limit of $3,252.

[iluvmikeharris]

It doesn't appear she has overcontributed.

If her deduction limit for 2007 was $17,961 then she is able to contribute $17,961 to an RRSP in 2007. The deduction limit is a culmination of all previous years eligible amounts less pension adjustments less amounts contributed in those years. She is also allowed to over contribute (without penalty) by $2000 giving her a maximum contribution for 2007 of $19,961. The $18,000 contribution will totally use her deduction limit and $39 of the her $2,000 overcontribution allowance.

The pension adjustment is taken into consideration when the deduction limit is calculated. The 2007 pension adjustment of $7,045 has already been taken into consideration for the 2008 deduction limit of $3,252.

+1

The pension adjustment factors in to the contribution for the 2008 tax return which will be submitted in early 2009. No need to worry.