Canadian tax principles, George Brown College, Canada

AP 10-2 (Excess RRSP Contributions)

As she was attending university during 2017, 2018, and 2019, Karla had no earned income for

RRSP purposes in any of these three years. However, before returning to university she had been

employed and, refecting this, on January 1, 2019, she has RRSP deduction room of $21,300.

She also has undeducted contributions on this date of $15,250.

She returned to work on a part-time basis in 2020, resulting in earned income for RRSP pur-poses of $19,100. Also during 2020, she receives a bequest from the estate of her father in the

amount of $225,000. She immediately contributes $25,000 of this inheritance to her RRSP. She

does not deduct any RRSP contributions during this year. She also makes sufcient charitable

donations that her 2020 federal income tax payable is reduced to nil.

During 2021, she resumes full-time employment, resulting in a 2021 earned income of $47,800.

While she claims her maximum RRSP deduction for 2021, she makes no further contributions

to the plan during the year.

Required:

A. Determine Karlas maximum RRSP deduction for 2021.

B. Determine the Part X.1 penalty tax (ITA 204.1) (excess RRSP contributions) that would be

assessed to Karla for the year ending December 31, 2021.

C. Determine the amount of contributions that Karla would have to withdraw from her RRSP

on January 2, 2022, to avoid being assessed the penalty tax under Part X.1 (ITA 204.1). What

advice would you give to Karla regarding her retirement savings?