Today, February 29th, 2016 is the deadline for making a contribution to your 2015 Registered Retirement Savings Plan (RRSP). You have until 11:59pm to get it done.
Why is this deadline significant?
A registered retirement savings plan (RRSP) is a retirement savings plan that you establish, that gets registered at the Canada Revenue Agency (CRA), and to which you or your spouse or common-law partner contribute.
RRSP contributions are deductible and can be used to reduce your tax. Generally, any income you earn in the RRSP is exempt from tax as long as the funds remain in the plan.
If you need to take money out of the plan, you usually have to pay tax when you receive payments from the plan.
How much space can you contribute into your RRSP?
You can find your registered retirement savings plan (RRSP) deduction limit by going to:
- Amount (A) of the RRSP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment from the CRA
- Form T1028, Your RRSP Information for 2015.
The CRA may send you a Form T1028 if there are any changes to your RRSP deduction limit since your last assessment.
You can also get the information yourself in one of the following manners;
- My Account
- MyCRA mobile app
- Tax information Phone Service (TIPS)
A RRSP contribution can be the difference between owing taxes to the CRA and getting a refund, and it can also be used to reduce amounts owing.
In some situations, borrowing the money to make a RRSP contribution helps to reduce a pending tax burden – increase a refund – and then the refund can be used to pay back or down that borrowed amount.
I had a nice conversation this morning with a chartered accountant (CA) with who I work regarding assessments raised by the Canada Revenue Agency (CRA) relating to the Tax Free Savings Account (TFSA). I made notes of the conversation, then called the CRA to run the scenario by them.
They agreed with this process.
These recommendations are just that, recommendations, relating to relief for those assessed with penalties for over-contributing to their TFSA.
Write a letter to the CRA asking for relief. Send the letter to the following address:
TFSA Processing Unit
PO Box 9768, Stn T,
In the letter, make sure that you include:
- Your Social Insurance Number (SIN) as it is the reference number to your TFSA account;
- The circumstances and facts which led to the over-contributions. As an aside, if you knew you were putting in too much – you might not want to include that fact;
- The actions you took to immediately remedy the situation as soon as you found it that you had contributed more than you were allowed;
- The financial institution you have your TFSA with, and any related account numbers as that institution (the CRA loves to look for patterns – possibly a specific institution is not notifying their clients of the perils of over-contributing or maybe a flag is missing on their system to notify the account manager once an account goes into penalty-territory;
- Any supporting documentation – written confirmation or statements from the financial institution – if it was their fault, and to show that you rectified the situation as soon as possible);
- Also make sure to include a copy of the letter you received from the CRA notifying you that you are being charged penalties for the TFSA account.
Unlike a Taxpayer Relief application available in the Income Tax Act (ITA) and Excise Tax Act (ETA) there is no formal relief process known to be used by everyone currently, so this soft approach has been used and with success.
The CRA may, at their discretion, lower or completely reverse the assessed penalty, or they may send you back a letter asking for payment of the penalty.
It is certainly worth an attempt.
If you have been assessed a penalty for over-contributing to your TFSA and are either too busy or would prefer the letter be written by a professional firm, please contact us and we would be more than willing to assist you in this process.