TaxMatters@EY – February 2025

Krista Fox, Toronto, and Gael Melville, Vancouver

Registered retirement savings plans (RRSPs) and tax free savings accounts (TFSAs) are two common investment tools Canadians use to save for retirement. However, the Income Tax Act (the Act) provides restrictions around contributions to these plans. If you run afoul of the rules, you could incur significant penalties, and there’s little recourse.

Recent court decisions demonstrate that individuals who argue either that they failed to understand their contribution limits or failed to properly interpret the information available on their notices of assessment or on the CRA’s MyAccount service may still be held accountable for the associated penalties and, if applicable, interest.

Let’s take a look at the rules governing RRSP and TFSA contributions, how to find out your available contribution room, the consequences associated with overcontributions, and recent court decisions that illustrate the importance of checking and understanding your available contribution room before you make contributions.

How RRSP and TFSA contribution room is calculated

RRSPs

Your RRSP deduction limit determines the maximum tax-deductible RRSP contributions allowed each year. You may deduct from income RRSP contributions made before the end of the year or up to 60 days after the end of the year, to the extent they were not deducted for a previous year. The limit applies to contributions made to either your own or a spousal RRSP.

Broadly speaking, your deductible 2024 RRSP contribution is limited to the lesser of 18% of your earned income for 2023 and a maximum of $31,560. The dollar limit is indexed each year for inflation and for 2025 will increase to $32,490. In addition to this amount, you would include your unused RRSP deduction room from the prior year. Generally, if you contribute less than your RRSP deduction limit, you can carry forward the excess until the year you reach age 71.

If you’re a member of a registered pension plan (RPP) or a deferred profit sharing plan (DPSP), the maximum annual RRSP contribution as calculated above is reduced by the pension adjustment for the prior year and any past-service pension adjustment for the current year.¹

There may also be an increase or decrease to your RRSP deduction limit if your employer revises your benefits entitlement from the employer’s pension plan.

In addition, you can carry forward undeducted RRSP contributions. Certain qualifying transfers are allowed to be made without affecting your contribution limit.

An individual may overcontribute up to $2,000 to an RRSP without incurring any penalty. This is referred to as the overcontribution margin.

If you have multiple RRSP accounts — such as a self-directed RRSP and a group RRSP account through your employer — it’s important to remember the contribution limit applies to contributions made to all accounts. This includes any matching contributions your employer makes to your group RRSP account.

TFSAs

In general terms, your maximum available TFSA contribution room in a given year is the sum of three amounts:

• The annual TFSA dollar limit ($7,000 for 2025)
• The cumulative unused TFSA contribution room from a previous year
• The total amount of withdrawals made from the TFSA in the previous year

Unlike RRSPs, contributions made to a TFSA are not deductible and there is no overcontribution margin (see above).² Withdrawals can be made at any time and used for any purpose.

As noted above, amounts withdrawn from a TFSA — including income and capital gains earned in the account — are added to your contribution room in the following year. If you withdraw an amount from your TFSA in a year and then recontribute that amount to a TFSA in the same year, it could result in an overcontribution in the event you had already contributed up to your maximum available contribution room. Certain qualifying transfers and exempt contributions are permitted without affecting your contribution room.

You may hold more than one TFSA at a time, but the total amount you can contribute to all TFSAs in any year is restricted to the TFSA dollar limit for that year, plus the amounts noted above.

Where to find information on available RRSP and TFSA contribution room

RRSPs

The CRA provides the computation of your current-year RRSP deduction limit on your notice of assessment for your prior-year income tax return. You can also check your RRSP deduction limit online through the CRA’s My Account service or by phone.

TFSAs

TFSA contribution room limits can be checked through My Account or by phone.

Note that it is important to keep track of your own TFSA contributions and withdrawals since a TFSA issuer reports transactions to the CRA only once each year. Therefore, the information the CRA gives you may be out of date.

You can request a TFSA contribution room statement from the CRA, or a TFSA transaction summary, which shows the information the CRA has received respecting your TFSA contributions and withdrawals. Form RC343, Worksheet – TFSA contribution room, can also be used to calculate your contribution room for the year.

Overcontribution penalties

RRSPs

RRSP contributions beyond the overcontribution margin are subject to a penalty tax of 1% per month until the excess amount is removed from the plan. You must file Form T1-OVP, Individual Tax Return for RRSP, PRPP and SPP Excess Contributions, to report the tax payable on RRSP overcontributions. The return must be filed and the tax must be paid no later than 90 days after the end of the tax year.

If you find you’ve made an overcontribution, you may be able to rectify the situation by making a withdrawal using Form T3012A, Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP, or SPP Contributions from your RRSP, PRPP or SPP. Provided you haven’t claimed a deduction for the contributions and you meet the other requirements, this form authorizes the RRSP issuer not to withhold tax on the amounts withdrawn. Just remember you must complete part of the form and send it to the CRA for approval before sending it to your RRSP issuer.

Note that in certain cases it may be acceptable to wait for new contribution room to become available in the following year rather than making a withdrawal, for example if the overcontribution is made close to the end of the year and the new contribution room will absorb the overcontribution, since the penalty tax may be insignificant. You’ll still be liable for the penalty tax on the excess amount in the account, and subject to the related filing requirement.

You may also request that the penalty tax be waived or cancelled using Form RC2503, Request for Waiver or Cancellation of Part X.1 Tax – RRSP, PRPP and SPP Excess Contribution Tax. You must provide circumstances and facts supporting your request and explain why you made excess contributions and why it was a reasonable error. However, as shown in the recent court decisions discussed below, the CRA may not agree that the excess contribution resulted from a reasonable error, particularly where corrective action is not taken in a timely manner.

TFSAs

Overcontributions to a TFSA are also subject to a 1% penalty tax on the excess contribution amount, which is calculated monthly based on your highest excess TFSA amount for that month. The 1% tax applies until the excess amount is removed from the plan.

You may take action to correct an overcontribution and minimize the tax by making one or more withdrawals from your TFSA to reduce or eliminate the excess TFSA amount. The CRA may also send a letter or a proposed TFSA return under certain circumstances if you’ve made TFSA overcontributions.

The CRA may also waive or cancel all or part of the 1% tax upon request if you take action without delay to withdraw a sufficient amount from your TFSA to eliminate the excess amount, together with any associated income and capital gains, and the CRA is satisfied the overcontribution and resulting penalty tax arose as a consequence of a reasonable error.

There are associated rules that govern taxes on advantages and nonqualified or prohibited investments held in RRSPs, TFSAs and other registered savings plans. For further information, see “Avoiding penalties on registered plan investments” in the June 2020 edition of TaxMatters@EY: Family Wealth Edition.

Recent court decisions

Three recent Federal Court decisions illustrate that taxpayers who argue they were unaware they had overcontributed to their TFSA or RRSP, or didn’t understand the rules surrounding overcontributions, are often not afforded relief from penalty taxes and interest.

In Fang v AGC (2024 FC 1399), the taxpayer exceeded their TFSA contribution room in 2020 and 2021. The CRA sent a notice of assessment to their CRA online account imposing taxes and interest in respect of the excess contributions. The taxpayer failed to check their online account until February 2022 and, after discovering the notice of assessment, immediately withdrew the excess amount and filed a request to have the tax and interest waived. The request was denied, as was a second request.

In dismissing the taxpayer’s application for judicial review of the CRA’s decision, the Court found that, although the excess contributions were unintentional and were immediately withdrawn upon discovery, it was reasonable for the CRA to expect the taxpayer to be responsible for understanding their TFSAs and reviewing their notices of assessment.

Similarly, in Uddin v CRA (2024 FC 1603), the taxpayer applied to the CRA for a waiver of taxes on excess TFSA contributions on the basis that the overcontributions were a mistake and they were unaware of the contribution limits. The taxpayer made the initial overcontribution in 2020 and had opted to receive electronic notices from the CRA. Although the CRA sent an electronic notice of assessment in July 2021 advising about the overcontribution, the taxpayer didn’t view the notice until September 2022. By that time, the value of the investment had declined to zero and they were unable to withdraw the overcontribution.

In dismissing the taxpayer’s judicial review application, the Court noted it was open for the CRA to conclude that the excess contributions were not due to a reasonable error, all available funds had not been removed from the taxpayer’s active TFSAs, and the taxpayer had opted to receive notices electronically and was responsible for regularly checking their account.

Finally, McFadden v The King (2024 FC 1105) concerned a taxpayer who was denied a request to waive taxes on excess contributions made to their RRSP between 2008 and 2014. The taxpayer opted out of their employer’s pension plan in 2008 and, under an agreement with the employer, instead received either a lump sum or direct contributions to their own or their spouse’s RRSP each year. The annual amount received was equivalent to that year’s maximum allowable RRSP contribution. The first of these payments was made in January 2008 and resulted in an excess contribution because the taxpayer’s RRSP contribution limit for 2008 was not yet adjusted for the fact they had opted out of the pension plan. Therefore, due to the wording of the legislation, the adjustment would not take effect until 2009.

Although the taxpayer’s 2009 notice of assessment indicated they may have to pay a penalty tax on the excess RRSP contribution, the taxpayer continued to contribute the maximum amount allowed as shown on their annual notice of assessment. In 2014, the CRA sent the taxpayer a letter to notify them of the continued excess contribution. In 2015, the taxpayer explained to the CRA that a portion of the 2009 contribution was made in error. The taxpayer took no steps to correct the error, other than to not contribute to their RRSP in 2015 so the annual limit could absorb the excess contribution. 

In dismissing the taxpayer’s application for judicial review, the Court found it was reasonable for the CRA to conclude that a taxpayer who fails to understand the RRSP rules or make any inquiries concerning their contribution limit cannot demonstrate that an error resulting in an excess contribution was reasonable.

Conclusion

At this time of year, people are often looking to make catch-up RRSP contributions to deduct for their previous taxation year, or to take advantage of new TFSA contribution room becoming available for the new year.

It’s important to stay vigilant about CRA communications. Particularly because these communications are increasingly electronic, you must make sure to carefully review your notices of assessment and promptly follow up on any excess contributions. You must also keep track of your available contribution room and stay within the applicable contribution limits. Failure to do so could result in a significant tax liability, regardless of whether your error was unintentional.

For more information on RRSPs and TFSAs, see Chapter 5, “Investors,” and Chapter 11, “Retirement Planning,” in the latest edition of Managing Your Personal Taxes: a Canadian Perspective.

Lucie Champagne, Alan Roth, Candra Anttila and Yiyun Chen, Toronto

Frequently referred to by financial planning columnists, our mobile-friendly 2025 Personal tax calculator lets you compare the combined federal and provincial 2025 personal income tax bill in each province and territory. A second calculator allows you to compare the 2024 combined federal and provincial personal income tax bill.

You’ll also find our helpful 2025 and comparative 2024 personal income tax planning tools:

• An RRSP savings calculator showing the tax saving from your contribution
• Personal tax rates and credits by province and territory for all income levels

In addition, our site offers you valuable 2025 and comparative 2024 corporate income tax planning tools:

• Combined federal-provincial corporate income tax rates for small business rate income, manufacturing and processing income, and general rate income
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• Corporate income tax rates for investment income earned by Canadian-controlled private corporations and other corporations

You’ll find these useful resources and several others — including our latest perspectives, thought leadership, Tax Alerts, up-to-date 2025 budget information, TaxMatters@EY and much more — at ey.com/ca/taxcalculator.

Evelyn Tang, Calgary

In Coopers Park Real Estate Development Corporation v His Majesty the King, the Tax Court of Canada reiterated the principles for examinations for discovery and the narrow circumstances under which solicitor-client privilege can be claimed.

The Court confirmed that privilege applies to communication involving seeking or giving legal advice between a solicitor and their client, which includes any documents in the continuum of communication in tendering that advice. There is, however, no concept of accountant-client privilege.

Background and facts

The underlying issue in this appeal was the application of the general anti-avoidance rule, but this judgment concerned a motion the Crown raised. Under the motion, the Crown requested an order compelling the taxpayer to:

• Provide answers to outstanding questions
• Make inquiries to third parties regarding the transactions at issue
• Produce documents over which the taxpayer asserted solicitor-client privilege

Incomplete answers and refused questions

During the process of discovery in a legal proceeding, each party has the opportunity to ask questions of and request documents from the other.

Rule 95(1) of the Tax Court of Canada Rules (General Procedure) provides that a person examined at the discovery stage shall answer any proper question that is relevant to any matter in issue at the proceeding. A general principle is that relevance on discovery is broadly and liberally construed, with a lower threshold than that once it goes to trial. Whether a question is relevant is determined with respect to the facts and issues raised in the parties’ pleadings.

The Court reviewed the incomplete answers the taxpayer had provided to certain questions, and the questions the taxpayer had refused to answer, and determined whether further responses should be provided on a question-by-question basis.

Through its review, the Court found that the taxpayer’s own conduct contributed to the protracted examinations for discovery. For instance, the taxpayer provided information in a piecemeal fashion, which prompted follow-up questions when new information was provided. Further, the taxpayer provided nonresponsive or incomplete answers to relevant questions, referred the Crown to documents that required analysis to determine the taxpayer’s position or response, and ignored the context of the questions as they related to specific documents, events or transactions.

As a result, the Court ordered the taxpayer to answer the majority of the disputed questions.

Third-party inquiries and requests

For the third-party inquiries and requests portion of its motion, the Crown asked for documents that were not in the taxpayer’s possession. Nonetheless, the Crown asserted that the taxpayer had “power” over these documents, which were copies of planning documents and advice from the taxpayer’s former advisors.

The Court found that since the parties had agreed on partial disclosure of documents under Rule 81 of the Court Rules, rather than full disclosure under Rule 82, the Court had a limited ability to compel the taxpayer to make further inquiries or requests, especially since the taxpayer had already answered initial questions and two sets of follow-up questions.

Rule 4 of the Court Rules provides a general rule of interpretation requiring the rules to be construed liberally “to secure the just, most expeditious and least expensive determination of every proceeding on its merits.” However, since Rule 81 does not require a party to list all relevant documents in its possession, control or power, the Court could not use the general, liberal construction permitted under Rule 4 to extend the interpretation of Rule 81 to the degree the Crown requested.

However, the Court noted that the Crown could pursue other avenues in the Court Rules to obtain the information at issue, whether using Rule 99 to examine a third party — in this case, the former advisors — or using Rule 86 to seek production of a document in a third-party’s possession.

Solicitor-client privilege

The taxpayer based their claim of solicitor-client privilege over the documents at issue on the assertion that they formed part of the chain of communication with counsel to obtain legal advice. In particular, the taxpayer claimed that where their accounting firm authored a document or forwarded information, the accounting firm was acting as the taxpayer’s agent in communication with counsel.

However, the Crown argued that an accountant’s tax planning advice is not privileged, and that the taxpayer had not provided enough evidence to show that the accounting firm was acting as the taxpayer’s agent.

The Court set out the established legal principles surrounding solicitor-client privilege, on which the parties agreed, as follows:

• Solicitor-client privilege applies to a communication between solicitor and client that entails the seeking or giving of legal advice, and that the parties intended it to be confidential.
• The privilege applies to documents within the continuum of communication in which the solicitor tenders advice.
• While there is no accountant-client privilege, solicitor-client privilege applies where an accountant acts as a representative or agent for a client in obtaining legal advice from a solicitor.
• Solicitor-client privilege does not apply where the accountant gives original and independent tax advice to either the lawyer or the client, even if the lawyer has overall responsibility in providing advice for a transaction.

Recent jurisprudence has set out a “functional” approach to be applied in analyzing whether solicitor-client privilege extends to a third-party communication. Under this approach, whether a communication is privileged will depend on the function the third party serves in relation to the communication. For privilege to apply, the communication must be in furtherance of either a function essential to the solicitor-client relationship or the continuum of legal advice provided by the solicitor. In particular, there is no privilege in respect of a communication to an accountant who must consider it and provide their own accounting opinion.

In claims for privilege, the Court had found previously that where a party fails to provide evidence in support of its claim for privilege, the Court must then make a decision solely on the face of the document.

In reviewing the documents for solicitor-client privilege in Coopers Park, the Court found the taxpayer had not provided any supporting affidavit or oral evidence for their assertion of solicitor-client privilege. Instead, the taxpayer provided a chart listing and describing the documents in dispute. The Court noted that this chart was not evidence, and so had to look at the face of the documents and make decisions purely on the basis of what was provided.

Ultimately, reliance on the Court’s discretion was fatal to the taxpayer’s case, in which many of the documents did not contain dates or names of authors or recipients. The Court noted that since there was no affidavit evidence from the parties directly involved, it could not conclude, on a balance of probabilities, that these documents were part of the continuum of obtaining legal advice; mere assertions are not sufficient to overcome the evidentiary burden. Of the 19 documents over which the taxpayer asserted privilege, the Court found only one email chain and certain parts of an engagement letter were protected by privilege.

Lessons learned

An important takeaway is that while current tax planning often requires the skills and knowledge of many types of professionals, there is no such concept as accountant-client privilege, and the mere inclusion of a lawyer in conversations does not create solicitor-client privilege.

Where the intention is for solicitor-client privilege to apply, special care must be taken to ensure that privilege is properly protected and that any professionals involved in the tax planning process who are not lawyers do not overstep their role by providing independent advice.

Finally, the onus is on the party claiming solicitor-client privilege to provide sufficient evidence in support of its claim.