Introduction

RRSP over-contributions are more common than most people realise — and the penalty for exceeding the contribution limit is 1% per month on the excess, from the date of the over-contribution. For incorporated professionals who generate RRSP room through salary payments and contribute aggressively, the risk of inadvertent over-contribution is real.

How RRSP Over-Contributions Happen

RRSP contribution room is generated based on the prior year's earned income — reported on the T1 and confirmed on the Notice of Assessment for that year. The room for the 2026 RRSP year is based on 2025 earned income.

Common over-contribution scenarios:

Timing errors: The incorporated professional makes an RRSP contribution in January or February 2026 — thinking it applies to the 2025 contribution year, which it does — but has not yet received their 2025 NOA confirming the available room. If the room is less than expected (because salary was lower than anticipated), the contribution may exceed available room.

Room miscalculation: The incorporated professional draws salary from the corporation but does not account for RRSP room already used in the year by a spousal RRSP contribution — double-counting available room.

Carry-forward confusion: Prior years' unused contribution room carries forward. The incorporated professional may have a complex carry-forward history from years with varying salary levels, making the total available room difficult to calculate precisely.

The $2,000 Buffer

The Income Tax Act allows a $2,000 lifetime over-contribution buffer — RRSP contributions can exceed the calculated room by up to $2,000 without penalty. This buffer is a one-time allowance, not an annual one. Once used, any further excess above the room is subject to the 1% monthly penalty.

The CRA's Detection Process

The CRA matches RRSP contribution slips (filed by the financial institution) against the taxpayer's contribution room on file. Where the total contributions in a year exceed the available room plus the $2,000 buffer, the CRA issues a T1-OVP assessment — charging 1% per month on the excess from the month it occurred.

For an over-contribution of $15,000 outstanding for eight months, the penalty is $1,200 — not a devastating amount, but avoidable.

The Fix: Withdraw the Excess

Once an over-contribution is identified, the fastest resolution is withdrawing the excess from the RRSP. The withdrawal is included in income in the year withdrawn — which partially offsets the purpose of the RRSP contribution. However, the CRA can waive the penalty under taxpayer relief where the over-contribution was made in good faith and the excess was withdrawn quickly once identified.

The Special Timing Rule

An RRSP contribution made in the first 60 days of a calendar year (January 1 – March 1) can be designated as either a current-year or prior-year contribution — the taxpayer chooses. This flexibility is what creates the January/February over-contribution risk: the room for the current year is not confirmed until the NOA arrives, but contributions are made early on the assumption of anticipated room.

When to Speak With a CPA

Before making a large RRSP contribution — particularly in January or February — a CPA should confirm the available contribution room from the prior year's NOA and the carryforward balance. A two-minute check prevents the 1% monthly penalty and the complexity of a T1-OVP assessment.

Rotaru CPA confirms RRSP contribution room for incorporated clients as part of annual compensation planning. Book a consultation to review your RRSP position before contributing.