RRSP Contributions - Make sure they are done right

I know that most of you are still thinking (and stressing) about Christmas and all the things that still need to be done, but I need you to start thinking about something else that will be upon you before you are ready. What is it? Glad you asked. RRSP’s (Registered Retirement Savings Plans).  As most of you know the deadline for contributions is the end of February.  Now is a good time to start planning and saving.  There are also a few things I would like to share to make sure you don’t run into problems. Problems?  “Come on its RRSP’s how hard can it be?”  Well since you asked gather round because it is time for a Christmas edition of Story Time!

I have a client who made RRSP contributions for himself and his wife. Here is the problem. The client went into the bank to make RRSP contributions for the 2012 tax year. Being a good husband he also took care of making contributions for his wife. Should be simple enough right? I mean one spouse does the banking while the other watches the kids. Well here is the problem, something got messed up by the bank or the client did not make things clear, or just did not know. The contribution got treated as a spousal contribution. For those of you who don’t speak Tax, a spousal contribution is where one spouse contributes to the others plan. The contributing spouse claims the deduction and uses up their RRSP room. This is done to split income in retirement in cases where one spouse did not work, or made significantly less.

Anyway something got lost in translation, or assumptions were made. The intent was that the husband was contributing to his RRSP and was simply doing the paperwork to indicate that the wife was contributing to her RRSP. Regardless, the documents were done up as if the contribution to the wife’s was a spousal, as opposed to the intended self-contribution by the wife. Now the fun starts. Did you know that the CRA gets copies from institutions of all paper work that has to do with contributions to RRSP’s, and even TFSA’s? Well they do. The CRA also reconcile those records against what is claimed on tax returns. So now the fun really starts. The CRA wants to charge penalties because the client over contributed to “his” RRSP (exceeded available deduction room).

I know that I say that I can fix anything (for the most part it is true), however this is one that I may not be able to fix. As I see it the easiest and only way to fix things is to get the bank to correct the slips issued regarding the contributions. The problem is, I don’t know if they can, and more importantly if they will. As far as the bank is concerned they did everything properly. If the bank won’t amend the filings then we have to convince the CRA that the paper work got messed up. Not likely, but not impossible. Anyway the story will be continued when I have succeeded, or failed.

In the meantime take this story to heart and make sure that both you and your spouse, and your financial institution all understand what your intentions are, and be extremely clear as to who is contributing, and to which plan the contributions are being made. If you are in doubt make sure you both go to the bank (or financial advisor). I shouldn’t have to repeat myself, but I will. NEVER assume (ASS-U-ME) !!!