T1-OVP: 1% a month on RRSP excess over room plus $2,000

The 1% applies only to the amount above room plus $2,000, at each month end

ITA 204.1(2.1) charges a tax equal to 1% of the cumulative excess amount your client has at the end of each month laws-lois.justice.gc.ca. Subsection 204.2(1.1) defines that amount as undeducted RRSP premiums minus the deduction room items, and one of those items is the $2,000 laws-lois.justice.gc.ca. So the $2,000 is subtracted before the 1% is applied. The CRA describes it the same way: 1% a month on unused contributions that exceed the deduction limit by more than $2,000 canada.ca.

The test runs at the end of the month, not on the highest balance in the month. A contribution withdrawn before the end of the month it went in costs nothing, and the CRA lists that as one of the cases where no tax is owed canada.ca. That's the opposite of the TFSA overcontribution penalty, which taxes the highest excess at any time in the month with no cushion at all.

Two other exceptions cover contributions made before February 27, 1995 and qualifying group plan amounts canada.ca. For how the deduction limit itself is built, see the RRSP limit for 2026.

Worked example: an $8,000 overcontribution in June 2026 costs $0 to $420

Your client's 2025 notice of assessment shows a 2026 RRSP deduction limit of $12,000 and no unused contributions. They contribute $12,000 on April 15, 2026, then forget and put in another $8,000 on June 10, 2026.

The client is $8,000 over the limit but only $6,000 is taxed. What they pay for 2026 depends on when the $6,000 leaves the plan.

The last row is the trap. If the documents sent with the return don't show the exact months, the CRA may assess from its own records, treating contributions in the first 60 days of the year as made in January, the rest as made in March, and withdrawals as made in December canada.ca. RRSP receipts and T4RSP slips don't show the month, so ask the issuer for a statement that does.

Leaving the money in also works once the room catches up. If your client deducts $12,000 for 2026, $8,000 of undeducted contributions carries into 2027, and the tax stops from January 2027 as long as the 2027 deduction limit is at least $6,000.

Most clients file the simplified T1-OVP-S, due 90 days after year end

The CRA's instruction is to fill out the simplified T1-OVP-S for RRSP excess contributions made from January 1, 1991 to December 31, 2025 that are subject to tax, one return for each year. The full T1-OVP is for a client who made mandatory contributions to a group RRSP or a PRPP in 2024 or 2025 that are subject to tax canada.ca. The form pages say the same: T1-OVP-S is for anyone who overcontributed after February 27, 1995 without mandatory group RRSP contributions canada.ca. The 2025 editions of both forms are the latest posted as of October 2026 canada.ca.

The return and the tax are due no later than 90 days after the end of the year with the excess canada.ca. For 2025 that was March 31, 2026 canada.ca. The same 90 day count puts the 2026 return at March 31, 2027.

File late and the penalty is 5% of the balance owing plus 1% for each full month late, up to 12 months, and it can be higher if a T1-OVP late filing penalty was charged in any of the three previous years. Interest compounds daily on unpaid tax and penalties from the 91st day of the following year canada.ca. The current rate is on the CRA overdue interest page.

The CRA's six step check decides whether a return is needed at all. If unused contributions are less than the deduction limit plus $2,000, no return is required, and a client younger than 19 at any time in the year should file the T1-OVP-S canada.ca.

How does your client take the excess out without the withdrawal being taxed?

A withdrawal of unused contributions goes into income, but your client can deduct an equal amount on line 23200 when the conditions in ITA 146(8.2) are met canada.ca. The contributions must never have been deducted, and the money must come out in the year it was contributed, the year the CRA sends a notice of assessment for that year, or the year after either one laws-lois.justice.gc.ca.

The deduction is refused if it's reasonable to consider that your client didn't expect the contributions to be fully deductible in the year paid or the year before, and contributed intending to withdraw them and claim the deduction laws-lois.justice.gc.ca. An honest mistake passes. Parking money on purpose doesn't.

Form T3012A is the tax deduction waiver on the refund of unused contributions canada.ca, and it can't be used for unused contributions that were transferred to a RRIF canada.ca. Without it the issuer withholds tax at the standard rates; in Quebec the federal rates are 5%, 10% and 15% plus provincial tax canada.ca. In the example above, one $6,000 withdrawal without a T3012A has 20% withheld, $1,200, which comes back on the T1. Form T746 calculates the deduction canada.ca. The approval step and its limits are covered on the T3012A page.

When will the CRA waive the 1% tax?

Under ITA 204.1(4), the CRA may waive the tax when your client shows the excess arose from reasonable error and reasonable steps are being taken to eliminate it laws-lois.justice.gc.ca. Both conditions are needed, so pull the money out or let room absorb it before you ask.

The request goes on Form RC2503, the request for waiver or cancellation of Part X.1 tax canada.ca. Explain why the excess happened, why it was a reasonable error and what was done to fix it, and attach records showing the exact months of every contribution and withdrawal. The CRA doesn't accept official RRSP receipts or T4RSP and T4RIF slips as that proof. A waiver is asked for before the tax is assessed and a cancellation after. If relief is refused, the CRA may reassess using its default months canada.ca.

RC2503 covers the tax itself. Relief from the late filing penalty and interest falls under the taxpayer relief rules in IC07-1 instead canada.ca; see taxpayer relief on Form RC4288. For past years never reported, the Voluntary Disclosures Program can apply, but not once the CRA has started a review of the return canada.ca.