With the economy still uncertain, some Canadians have turned to their Registered Retirement Savings Plan (RRSP) as a source of funds. But there could be tax consequences on your 2016 tax return.

Lose your tax shelter: RRSPs are designed to help Canadians save for retirement and provide a tax shelter for the funds. You lose the sheltering benefits when you make a withdrawal.

Withholding may not be enough: When you request a withdrawal from your RRSP, the financial institution is required to withhold a certain percentage of tax based on the amount of the withdrawal:

  • 10 per cent on amounts up to and including $5,000
  • 20 per cent on amounts over $5,000 up to and including $15,000
  • 30 per cent on amounts over $15,000

The amount withheld at source is not usually sufficient to cover your final tax liability.

Withdrawal is considered income: The money withdrawn from an RRSP is considered income in the tax year it was received. You will have to add it to the other income you earned during the year on your tax return.

Contribution room lost: Once you withdraw money from your RRSP, the contribution room is lost. You cannot replace the funds at a later date.

Withdrawals without penalties: The Home Buyers Plan (HBP) and Lifelong Learning Program (LLP) do allow you to withdraw funds from your RRSP without penalty as long as they are paid back within the appropriate time frames. If the funds are not repaid, they will be considered income.


You can over contribute to your RRSP by up to $2,000 without being penalized. However, you cannot claim a deduction for the excess amount.

If you over contribute by more than $2,000, you are subject to a one per cent penalty tax for each month you are in excess of that. You have to complete a T1-OVP Individual Tax Return for RRSP Excess Contributions to calculate the amount of the over contribution and penalty tax. This form must be filed, and the tax remitted, within 90 days from the end of the year (March 30, 2017 if there was an excess amount in the plan at the end of a month in 2016).

You can request a waiver of the penalty tax if:

  • the excess amount arose as a consequence of reasonable error; and
  • you can demonstrate that you are taking reasonable steps to eliminate it.

If you discover that you have over contributed, you should try and withdraw the excess amount as soon as possible. Although you must include the withdrawal in income on your tax return, you can claim an offsetting deduction as long as the following conditions are met:

  • You reasonably expected to be able to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
  • You did not make the contribution with the intention of later withdrawing it and deducting the offsetting amount.

You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.

Without a T3012A, you can still withdraw the excess amount but the financial institution will withhold tax. Use Form T746 when you file your tax return to claim the offsetting deduction and a credit for the tax withheld.

A tax professional at H&R Block High River can talk about other credits and deductions that may affect you. Call 403-652-7266 to schedule an appointment. Walk-in’s Welcome.

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