Example –Tax on RESP excess contributions
In 2000, Hugh established an RESP for his son Allan and contributed a total of $32,000 to it prior to 2017. Allan’s grandmother, Cathy, also opened an RESP for Allan in 2000, and prior to 2017, contributed $16,000 to it. None of the prior year contributions made by Hugh and Cathy exceeded the annual or lifetime limits that were applicable in those prior years.
In January 2017, Hugh contributed $1,000 and Cathy contributed $500 to their respective RESPs and in July, both Hugh and Cathy contributed an additional $500. Hugh subsequently withdrew $500 in December.
|Plus contribution in January 2017||$1,000||$500|
|Plus contribution in July 2017||$500||$500|
|Minus withdrawal in December 2017||($500)||0|
|Total share of the lifetime contributions||$33,500||$17,000|
The lifetime limit on all contributions that can be made to all RESPs for Allan is $50,000. Together Hugh and Cathy had contributed $48,000 to RESPs for Allan before 2017 and at the end of January 2017, the total contributions were $49,500 which was still within the lifetime limit for contributions to RESPs for Allan. However, at the end of July the total contributions were $50,500 and the lifetime limit was exceeded by $500.
The lifetime excess contributions for 2017 is calculated as follows:
Hugh's lifetime contributions for Allan before 2017
Cathy's lifetime contributions for Allan before 2017
Total contributions to an RESP for Allan before 2017
Maximum lifetime limit remaining (50,000 − 48,000)
Total of contributions made in 2017 for Allan
Hugh's share of the lifetime excess contributions for 2017 was $300. This was determined by multiplying his proportion of the total contributions made to both RESPs in 2017 ($1,500 ÷ $2,500) by the excess ($500) or ($1,500 ÷ $2,500 × $500). Similarly, Cathy's share was $200 ($1,000 ÷ $2,500 × $500).
Hugh's tax payable for 2017 is calculated as follows:
Hugh's tax on his share of the excess contribution is calculated for each month the excess contribution remains in the RESP. For July to November, Hugh's tax is $300 × 1% × 5 months or $15.00.
Cathy's tax payable for 2017 is calculated as follows:
Cathy's tax on her share of the excess contribution is calculated for each month the excess contribution remains in the RESP. For July to November, Cathy's tax is $200 × 1% × 5 months or $10.00. Because Hugh withdrew the excess amount in December 2017, neither Cathy nor Hugh must pay any tax on the excess contribution in December.
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