RRSP Over-Contribution Penalty in Canada: The 1% Monthly Tax, Worked Out
Put too much into your RRSP and the CRA charges a tax of 1% a month on the excess. A $2,000 buffer covers small mistakes, but anything above it costs you every month until you fix it.
- Rules checked October 28, 2026
- By H Paul
- 8 min read
On this page
This guide shows how the CRA measures the excess and what a hypothetical $10,000 mistake costs depending on how fast you act. It also covers the forms that let you take the money out without being taxed on it.
The short answer
If your unused RRSP contributions are more than $2,000 above your RRSP deduction limit, you owe a tax of 1% per month on the amount above $2,000 for every month it stays there. You report it on Form T1-OVP and pay within 90 days after the end of the year.
The rule comes from section 204.1 of the Income Tax Act and is explained on the CRA page on RRSP excess contributions. The fastest fix is to withdraw the excess. You can also wait for new room to absorb it, but each month in between costs 1%.
How the CRA measures an over-contribution
The Income Tax Act calls the taxed amount your cumulative excess amount. At the end of each month, it compares the contributions you have made but not yet deducted with three things added together: your unused deduction room carried in from last year, your new room for this year, and the $2,000 buffer.
New room is generally 18% of last year’s earned income, up to an annual dollar limit, minus any pension adjustment from a workplace plan. The RRSP dollar limit is $32,490 for 2025, $33,810 for 2026 and $35,390 for 2027. Your own figure is on the RRSP Deduction Limit Statement in your latest notice of assessment, or on Form T1028.
Two details catch people out:
- Spousal RRSP contributions count against your limit, not your spouse’s or partner’s. The CRA says your limit covers both your own RRSP and any spousal plan you pay into.
- The $2,000 buffer depends on age. It only applies if you turned 18 in an earlier tax year. If you turn 18 this year or are younger, there is no buffer.
What the 1% tax costs at different amounts
The maths is simple once you know the excess. Subtract $2,000 and take 1% of what is left for each month-end the excess is still there.
| Amount over your limit | Amount taxed | Tax per month | Tax over 12 months |
|---|---|---|---|
| $2,000 | $0 | $0 | $0 |
| $3,000 | $1,000 | $10 | $120 |
| $5,000 | $3,000 | $30 | $360 |
| $10,000 | $8,000 | $80 | $960 |
| $25,000 | $23,000 | $230 | $2,760 |
Calculated by Gizly using the 1% monthly rate and $2,000 buffer in Income Tax Act sections 204.1 and 204.2, current to September 30, 2026. Assumes you turned 18 in an earlier year and the excess stays the same all year.
At 1% a month, the tax works out to 12% a year on the taxed amount. That is a high price for keeping money sheltered, so leaving a large excess in place rarely makes sense.
Worked example: $10,000 over in March 2026
Say you had already used all your 2026 room. On March 10, 2026, you put in another $10,000, perhaps because a payroll contribution you forgot about had already used the space. This is a hypothetical example.
Your excess is $10,000. After the $2,000 buffer, $8,000 is taxed, so the tax is $80 for each month-end the excess remains. What you pay depends on when you act:
- Withdrawn before March 31: the CRA says you may avoid the tax on excess you withdraw before the end of the month you made it. Cost: $0.
- Withdrawn in April: only the March month-end counts. Cost: $80.
- Withdrawn in June: March, April and May count. Cost: $240.
- Left until new room arrives: your 2027 room is added in January 2027. If it is at least $8,000, the excess disappears then, after 10 month-ends. Cost: $800.
- Left, and the T1-OVP filed 12 months late: the CRA late-filing penalty is 5% of the balance owing plus 1% per month late, up to 12 months. That adds $136, for $936 plus daily compound interest.
The tax for 2026 is due within 90 days after the year ends, which is March 31, 2027.
Withdraw it, or wait for new room?
Waiting saves effort but not money. Every month you wait adds 1% of the taxed amount. In the example above, an excess made in November would cost $160 by the time January room arrives, while one made in January would cost $960.
Withdrawing has its own catch. The money you take out is income for the year, and the bank or broker withholds tax unless you give it an approved form. You can usually deduct an offsetting amount, so you are not taxed on it in the end, but you have to claim it.
The two ways to take out the excess
- Form T3012A first. You send it to the CRA. If the CRA approves it, you give it to your financial institution and withdraw without tax withheld. You then deduct the amount on line 23200.
- Withdraw now, sort it out at tax time. The institution withholds tax. You report the income, claim the tax withheld, and use Form T746 to work out your deduction.
Either way, the CRA conditions apply. You must not have deducted the contributions, and it must be reasonable to believe you expected to deduct them or did not contribute in order to withdraw and deduct them. The withdrawal must also happen in the year you contributed, the following year, or the year you got a notice of assessment for that contribution year or the year after.
Leaving a small excess in place
An excess within the $2,000 buffer is not taxed. It stays in your RRSP as an unused contribution that you can deduct in a later year when you have room. The CRA notes that these amounts show on your RRSP Deduction Limit Statement.
Home Buyers’ Plan and Lifelong Learning Plan withdrawals
Taking money out under the Home Buyers’ Plan or the Lifelong Learning Plan may not remove the tax. The CRA lists this as a separate case, so use a regular withdrawal of the excess if fixing the over-contribution is your goal.
Keep proof of the months
The tax is charged month by month, so the dates matter. When you file the T1-OVP, include documents that show the exact months of your contributions and withdrawals. RRSP receipts and T4RSP slips do not show this.
If the months are missing, the CRA may assume contributions made in the first 60 days of the year happened in January, the rest in March, and withdrawals in December. For our example, a withdrawal in April treated as December would raise the tax from $80 to $800. Account statements showing transaction dates are the easiest proof.
Can you get the tax waived?
Sometimes. You can ask the CRA in writing, using Form RC2503, to waive or cancel the tax.
- It has to be a reasonable errorFor example, misreading your deduction limit or not knowing a workplace plan used your room.
- You have to actThe CRA looks for reasonable steps to correct it, such as withdrawing the excess promptly.
- File anywaySend the T1-OVP by the deadline. The waiver is a separate written request that the CRA decides on.
What to do if you over-contributed
- Confirm your limit. Check the RRSP Deduction Limit Statement on your latest notice of assessment, then add every contribution since, including spousal and workplace group RRSP amounts.
- Work out the excess and the month it started. Subtract your limit and the $2,000 buffer. If the result is zero or less, there is no tax.
- Withdraw the excess. Use Form T3012A to avoid withholding, or withdraw now and use Form T746 at tax time.
- File the T1-OVP. Use the T1-OVP return within 90 days after year end, with statements showing the months. If you were under 19 at any time in the year, you may need the simplified T1-OVP-S instead.
- Ask for a waiver if it fits. Send Form RC2503 with an explanation of the error and the steps you took.
- Report unused contributions. List contributions you did not deduct on Schedule 7 so the CRA tracks them for future years.
For the bigger picture on registered accounts, see our saving and investing guide and the Gizly money calculators.
Frequently asked questions
What is the penalty for over-contributing to an RRSP in Canada?
The CRA charges a tax of 1% per month on the part of your unused RRSP contributions that is more than $2,000 above your RRSP deduction limit. It applies for every month the excess stays in place, and you report it on Form T1-OVP.
How much can you over-contribute to an RRSP without a penalty?
Up to $2,000 above your deduction limit, as long as you turned 18 in an earlier tax year. If you turn 18 this year or are younger, there is no buffer and any excess can be taxed.
How do I fix an RRSP over-contribution?
Withdraw the excess or wait for new contribution room to absorb it. Withdrawing stops the tax from the next month end. Waiting keeps the money sheltered, but you pay 1% a month on the taxed amount until the new room arrives in January.
When is the T1-OVP due?
You file the T1-OVP and pay the tax within 90 days after the end of the year in which the excess happened. For an excess in 2026, that is March 31, 2027.
Do I pay income tax when I take out an RRSP over-contribution?
The withdrawal counts as income, but you can deduct an offsetting amount if you meet the CRA conditions. With an approved Form T3012A, no tax is withheld and you claim the deduction on line 23200. Without it, tax is withheld and you use Form T746.
Can the CRA waive the RRSP over-contribution tax?
Yes, in some cases. You can ask in writing using Form RC2503 if the excess came from a reasonable error and you have taken, or are taking, reasonable steps to fix it. The CRA decides each request.
- Sources, checked October 28, 2026: CRA: Excess contributions (modified 2026-09-17); CRA: Withdrawing the unused contributions (modified 2026-01-29); CRA: MP, DB, RRSP, DPSP, ALDA, TFSA limits (modified 2025-12-01); CRA: How contributions affect your RRSP deduction limit (modified 2026-01-29); CRA: Determine if you have to complete a T1-OVP (modified 2026-01-29); CRA: What to do with unused RRSP contributions (modified 2026-01-29); CRA: T1-OVP form (modified 2025-07-30); Income Tax Act, section 204.1 and section 204.2, current to 2026-09-30.
- Method: Tax amounts were calculated in Python by summing 1% of the excess above $2,000 at each month-end, then rechecked with the closed form (taxed amount x 1% x months). The late-filing penalty uses 5% plus 1% per month for 12 months. Interest is not included because it depends on the CRA prescribed rate and timing. The example is hypothetical.
Important: This guide is general information, not tax, legal or financial advice. Your own deduction limit, pension adjustment and timing can change the result, so confirm your figures with the CRA or a tax professional. Gizly is not paid by any institution mentioned here. See our affiliate disclosure.
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