A Payroll Glitch Nearly Cost a Cambridge Family Their RRSP

The situation

Miriam had worked as a paramedic in Cambridge for close to a decade, contributing to a group RRSP (registered retirement savings plan) through payroll alongside her employer's matching contribution. She and her husband Dawit, an insurance adjuster, also owned a small rental property they had bought a few years earlier, partly as a long-term plan to help fund their daughter Hanna's future education. Their finances were otherwise unremarkable: two steady incomes, one modest rental loss most years after mortgage interest and repairs, and RRSP contributions that had run quietly in the background of every paycheque for years.

That changed when Miriam's employer merged two regional paramedic services and migrated payroll systems. Somewhere in the transition, her RRSP deduction was set up twice under two different employee records — the old one from before the merger, and a new one created after it. For roughly thirty months, both the employee and employer portions of her RRSP contribution were remitted twice every pay period, without anyone at the employer or the plan administrator catching the duplication.

What the review found

Miriam noticed something only when she sat down to file taxes and compared her RRSP contribution slips against her available deduction room shown on her latest notice of assessment (the CRA's yearly summary of, among other things, how much room a taxpayer has left to contribute). The numbers did not come close to matching. Contributions for the past two and a half years, employee and employer portions combined, totalled roughly $95,000 — against available room of only about $17,000. The overcontribution, once growth inside the plan was accounted for, sat at close to $80,000.

The Income Tax Act treats RRSP overcontributions strictly. A taxpayer is allowed only a small cushion above their calculated limit before a monthly tax applies to the excess, for as long as the excess remains in the plan or until new contribution room accrues to absorb it. Because this had been building for well over two years without anyone noticing, the exposure was not a one-time penalty — it was a compounding monthly tax that had already been running, unnoticed, since the very first duplicate deduction.

Two separate problems needed solving at once. First, the ongoing tax exposure had to be stopped, which meant either removing the excess from the plan or generating enough new contribution room to absorb it. Second, and just as important, someone had to establish that the excess was not Miriam's error at all — it was her employer's payroll system that had caused it — because CRA has discretion to waive the tax where an excess arose from a reasonable, genuine mistake and the taxpayer acted promptly once it came to light. Whether that discretion would be exercised depended heavily on being able to show, clearly, how the error happened and that it was fixed at its source rather than simply absorbed by the family.

What we did

1. Reconstructed the error month by month. Before approaching the employer or the CRA, we worked with Miriam to pull every pay stub and contribution confirmation from the plan administrator across the full thirty-month period, mapping exactly when the duplicate remittance began, how much went in twice each period, and confirming the two employee records the merger had created. This timeline became the backbone of everything that followed — without it, both the employer and CRA would have been left guessing at whose error this was and how large it really was.
2. Pressed the employer to correct the error at its source. Rather than treating this as purely a personal tax problem for Miriam to resolve on her own, we contacted her employer's payroll and benefits department directly, laid out the duplicate-remittance timeline, and asked them to confirm in writing that the error was theirs. The employer agreed and arranged for the plan administrator to reverse a portion of the improperly duplicated employer-matching contributions directly out of the plan, since those amounts had never really been Miriam's to begin with — they were an operational overpayment by the employer, not a personal contribution decision.
3. Withdrew the remaining employee-side excess using the correct process. Amounts that had genuinely come from Miriam's own pay still needed to come out of the RRSP. Withdrawing an overcontribution the ordinary way triggers withholding tax on the amount taken out, on top of the monthly tax already accruing — effectively taxing the same dollars twice. We used the specific process available for withdrawing a genuine overcontribution, which, once approved, allows the amount to come out without that additional withholding, since the money was never validly sheltered in the first place.
4. Timed the withdrawal against the family's rental loss. Because the withdrawn amount still had to be reported as income in the year it came out, we planned the timing to fall in a year where the rental property was already running its usual loss from mortgage interest and repairs. That loss offset a meaningful share of the withdrawal, reducing the net tax bill in the year it landed rather than letting a $80,000 inclusion hit a year with no offsetting deductions at all.
5. Applied for discretionary relief from the monthly tax. With the employer's written confirmation of the payroll error, the reconstructed timeline, and evidence that the excess had been corrected as soon as it was discovered, we submitted a request asking the CRA to exercise its discretion to waive the monthly tax that had been accruing on the excess since it first arose. The request focused on the two things that discretion turns on: that the error was genuine and not Miriam's doing, and that she acted promptly once she found it.

The outcome

The employer's correction removed the bulk of the excess directly, since most of it was the duplicated employer match rather than Miriam's own contributions. The remaining employee-side amount came out of the plan through the proper overcontribution process, without the extra withholding tax that a routine withdrawal would have triggered, and the timing against the rental loss softened the year in which it had to be reported as income.

The relief request succeeded. The CRA agreed the excess had resulted from a genuine payroll error outside Miriam's control and that she had corrected it promptly once identified, and cancelled the monthly tax that had been accruing on the excess for the entire thirty-month period. Left unresolved, that tax alone — running month after month on an unnoticed $80,000 balance — would have been a substantial and entirely avoidable cost.

What made the difference was not any one step but the order of them. Fixing the error at its source with the employer, before treating it as solely Miriam's tax problem, meant most of the excess simply disappeared rather than needing to be extracted through a personal withdrawal. And having that correction documented in writing gave the relief request the kind of concrete, verifiable story that discretionary decisions respond to far better than a bare assertion that a mistake was made.

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