24 February 1994 External T.I. 9403885 - OVER-CONTRIBUTIONS TO RRSP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

Principal Issues:

Whether pre-1991 over-contributions to RRSP form part of the $8000.00 limit on over-contributions to RRSP's introduced with pension reform.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

$8000.00 limit is part of calculation of "cumulative excess amount" in 204.1(1.1) which is relevant only for purposes of determining an individual's "undeducted RRSP premiums" (defined in 204.1(1.2) for years after 1990. (See also 931508.)

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

1993 RRSP's and Other Registered Plans for Retirement Guide, pgs. 26 (see Note) and 28 (first complete paragraph).

HAA NUMBER:

7255-3

XXXXXXXXXX 940388

February 24, 1994

Dear XXXXXXXXXX:

Re: Part X.1 Tax on Over-Contributions To A Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of February 14, 1994, in which you ask whether amounts contributed to your RRSP before 1990 are subject to penalty if the exceed the limits for contributions set out in the Income Tax Act (the "Act"). You also ask if the pre-1990 over-contributions must be taken into account when determining whether you have exceeded the $8000.00 limit introduced in 1990.

Part X.1 of the Act levies two separate penalty taxes with respect to over-contributions to RRSP's. A tax on an "excess amount" in an RRSP at the end of any month after May, 1976, is required to be paid under subsection 204.1(1), and a tax on a "cumulative excess amount" in an RRSP at the end of any month after December, 1990, is required to be paid under subsection 204.1(2.1) of the Act. The former subsection is applicable for months ending after May 1976 and continues to apply for amounts contributed before 1991, while the latter subsection is applicable after 1990 and only in respect of amounts contributed after 1990.

As a result, if you contributed an amount to your RRSP before 1991 for which you were not permitted a deduction, but the total amount of pre-1991 undeducted premiums is less than $5500.00, you will not be subject to the subsection 204.1(1) tax. The pre-1991 over-contributions will not be subject to the subsection 204.1(2.1) tax, and you will be able to over-contribute up to $8000.00 to your RRSP in months ending after December, 1990, without incurring the latter tax. The undeducted premiums, whether pre-1991 or post-1990, will be subject to tax under subsection 146(8) of the Act, however, when received out of the RRSP. In effect, the over-contributions will be subject to double taxation, but there is no penalty tax per se.

Enclosed is the 1993 RRSP's and Other Registered Plans for Retirement Guide for your information. Please refer in particular to pages 26 (see Note) and 28 (first complete paragraph).

The foregoing comments are an expression of opinion only and are not binding on the Department. We trust, however, that they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate