28 July 1998 External T.I. 9810875 - OVERCONTRIBUTION WITHDRAWAL DEDN

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.

Principal Issues: Was it intended that overcontributions not withdrawn in time be taxed?

Position: yes

Reasons: The law clearly provides for a deduction where withdrawal is within a certain time frame so clear it was meant to apply.

XXXXXXXXXX 981087
M. P. Sarazin

July 28, 1998

Dear XXXXXXXXXX:

Re: Withdrawal of Excess RRSP Contributions

This is in reply to your letter dated April 20, 1998, wherein you asked us to provide you with instructions on how your husband could withdraw unclaimed registered retirement savings plan (“RRSP”) contributions. You have been advised by your Revenue Canada Tax Services Office that the amount cannot be withdrawn without being subjected to income taxes because the time limit for withdrawing excess contributions has expired. You are of the view that this result is unfair and unintended because no deduction was ever claimed in respect of the excess contributions.

The purpose of an RRSP is to allow an individual to defer income taxes on a limited amount of earned income which is set aside to provide for the individual’s retirement. A special tax under Part X.1 of the Income Tax Act (the “Act”) was introduced to discourage taxpayers from making excess contributions to take advantage of the investment earnings being exempt from tax. The special tax is payable in respect of each month in the year that an individual has contributions in excess of certain threshold amounts. In addition, under subsection 146(8) of the Act, an individual is required to include in his or her income the total of all amounts received in the year as a benefit out of an RRSP. However, in certain circumstances, an individual may be allowed a deduction when non-deducted RRSP premiums (typically RRSP over-contributions) are withdrawn within a specified time frame, as explained below.

Subsection 146(8.2) allows the taxpayer to deduct an amount in respect of undeducted RRSP contributions that are withdrawn in the year the amounts were contributed to the RRSP, in the following year or in the year that the taxpayer was sent a Notice of Assessment or Notice of Reassessment for the year the amounts were contributed to the RRSP. The conditions, which are described on page 13 of the enclosed Revenue Canada Guide titled “RRSPs and Other Registered Plans for Retirement 97”, are as follows:

(a) the taxpayer has not claimed a deduction in respect of the particular amounts being withdrawn;

(b) the taxpayer has not designated the withdrawal of the undeducted RRSP contributions as a qualifying withdrawal for the purposes of having a past-service pension adjustment (PSPA) certified;

(c) no part of the withdrawn contribution was a lump-sum payment from a registered pension plan, or certain deferred profit sharing plan amounts that was transferred directly to the RRSP;

(d) no part of the withdrawn amount was a lump-sum payment from the Saskatchewan Pension Plan that was transferred directly to the RRSP; and

(e) it is reasonable for us to consider that:

(i) the taxpayer reasonably expected to fully deduct the RRSP contributions for the year contributed or the previous year; or

(ii) the taxpayer did not make the undeducted RRSP contributions with the intent of withdrawing them later and claiming a deduction for the amount withdrawn.

It is clear that a deduction is only available where the withdrawal is within the allowed time limits where all of the conditions are satisfied. Consequently, where the withdrawal of the excess contribution does not qualify for the deduction under subsection 146(8.2) of the Act, the Act intended that the excess contribution be subjected to tax even though the contribution was never claimed as a deduction by the taxpayer.

We trust the above comments will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

ENCLOSURE