RRSP Over-Contribution Explained: The 1 Percent Tax
The 1 percent monthly tax, the C$2,000 buffer, Form T1-OVP, withdrawing the excess, and the waiver
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
An RRSP over-contribution is the amount by which RRSP contributions exceed the deduction limit plus a C$2,000 buffer. The excess is taxed at 1 percent a month until withdrawn or absorbed by new room, reported on Form T1-OVP within 90 days after year-end. People moving to the United States often over-contribute because their room stops growing.
On this page
How it works
| Item | Rule |
|---|---|
| Buffer | C$2,000 of cumulative excess is allowed without the tax — only if you were 18 or older at any time in the previous year |
| Tax | 1 percent per month on the cumulative excess above the buffer |
| Return | Form T1-OVP, filed and the tax paid within 90 days after the end of the calendar year (March 31, 2027 for a 2026 excess); filing late adds 5 percent of the balance owing plus 1 percent a month for up to 12 months |
| Fix | Withdraw the excess — with Form T3012A approved by the CRA, the issuer pays it without withholding tax — include it in income, and deduct the same amount on line 23200 (use Form T746 if tax was withheld) |
| Waiver | Ask the CRA in writing (Form RC2503) to waive or cancel the tax; both conditions must be met — the excess arose from a reasonable error, and you are taking or have taken reasonable steps to eliminate it |
The cross-border angle
RRSP room is generated by Canadian earned income — 18 percent of the prior year's earned income, up to C$33,810 for 2026, less any pension adjustment; a person who moves to the United States stops earning new room once Canadian earned income stops, so contributions that made sense while resident can create an excess. Contributions after the move are also rarely useful — the Canadian deduction only offsets income still taxed in Canada, and the United States doesn't allow a deduction (the RSP guide). Before moving, use remaining room; after moving, stop contributing.
Frequently asked questions
What is the RRSP over-contribution penalty?
A tax of 1 percent per month on the excess above C$2,000 until it's removed.
How do I fix an over-contribution?
Withdraw the excess (Form T3012A avoids withholding), file Form T1-OVP and pay the tax for each year it existed, and ask for a waiver on Form RC2503 if it arose from a reasonable error and you've taken steps to remove it.
Can I keep contributing to my RRSP after moving to the U.S.?
You can, but you won't earn new room, and the United States won't give you a deduction — it usually isn't worthwhile.
Is there a deadline for T1-OVP?
Yes — 90 days after the end of the calendar year in which the excess existed (March 31, 2027 for a 2026 excess), and the tax is due by the same date.
Official sources
The CRA explains: “Generally, you have to pay a tax of 1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000.” — Canada Revenue Agency, Excess Contributions, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/contributing-a-rrsp-prpp/what-happens-you-over-your-rrsp-prpp-deduction-limit.html
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our Canadian Tax Desk handles RRSP over-contribution corrections, T1-OVP filings, and waiver requests, especially around a move. See pricing or book a call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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