Did you know RRSP’s need to be reported in the first 60 days in order to avoid a Tax Bill?
Attention all RRSP-er’s! CRA will Adjust your Tax Return for failure to report your first 60 days of RRSP Contributions correctly. This WILL RESULT IN A TAX BILL……… Next Year.
Although we file our Taxes in Canada from Jan 1 to Dec 31, RRSP’s have their own Tax Season which starts and ends 6 days later. Our RRSP Tax Season Starts Mar 2 (61 days after the new Year) and Normally Ends on Mar 1 of the Following Year. Most people assume that you can delay reporting these deductions for the following year if you want but that is NOT TRUE.
Over the Past 3 Years, we have seen Increases in re-assessments on our clients for reporting these RRSP Contributions Late. Which Also Includes penalties and interest. their rationale for this Reassessment is that the RRSP donations did not exist in the Current Year and are therefore disallowed. The Fix for this Re-assessment seams simple, Adjust the previous Years Return, and the amount owing to you will cover the bill so you break even…
OR SO YOU THOUGHT!!!!
Here is HOW they GET YOU!!!
Most people will do an Adjustment to the Previous Years Tax Return. (First 60 Days of 2017 Disallowed on your 2017 Tax Return) And here is What Happens
- 2017 Tax Bill on $1,000 RRSP at 34.75% = $347.50 Plus Interest (@ 5%) $17.38 = $364.88
- Adjust 2016 To Include first 60 Days (Assume same tax Bracket) $347.5 + interest (@1%) $3.48= $350.98 Credit
- After Applying the 2016 credit of $350.98 against the tax bill of $364.88 = Bill still owing of $13.90
- In 2018 you will also need to report $3.48 Interest Income so add another $1.20. If you forget to report it ad another $0.70 penalty
- In Total CRA has made $15.20 off of you.
The Proper Way to fix it!!!
- Do an adjustment top 2016, report the contributions and carry forward the unused RRSP contributions to 2017
- You will recieve an ammended Norice of Assessment but this will not have changed your 2016 tax return
- Do Another Adjustment to 2017, Claim the Un-Used RRSP contributions
- This will eliminate the tax bill in 2017 and bring it back to how it was originally filed.
DON’T THROW AWAY YOUR MONEY!
The problem with either of these solutions is that unless you know exactly what you are doing, you will need to hire a professional to do this. Average time from start to finish to complete a simple adjustment like this is about 1/2 hour for each year. this is including customer contact, work, filing and follow up. So your cost on this would be $50 per year plus your time
SAVE YOUR MONEY AND REPORT YOUR FIRTS 60 DAYS CONTRIBUTIONS CORRECTLY.
OPTION #3 – IGNORE IT !!
By Ignoring this problem the CRA is double taxing you not only do you not get your tax deduction, but you will also have to pay Tax on this Money when you take it out. Meaning you earned $1,000 dollars, the Government got $700 of it and you only end up with $300.