A $460,000 RRSP Transfer Error, and the Case for Full Relief

The situation

Mai had spent close to two decades building up several locations of a franchised quick-service restaurant chain around Cobourg and the surrounding area. In the early years, money had gone back into the business rather than into retirement savings, which left him with a large amount of unused RRSP contribution room carried forward from prior years — the kind of gap that is common among self-employed people who reinvest in their operations instead of maxing out registered accounts on schedule. When Mai sold his interest in two of the locations to a partner, the sale put roughly $1.1 million into his hands, and for the first time in years he had both the room and the cash to catch up seriously on retirement savings.

His spouse, Micheline, worked as an investment advisor and was comfortable managing the family's finances directly rather than leaving everything to a single institution. Together they decided to consolidate several scattered RRSP and TFSA accounts — some held from Mai's earlier years in the business, some from Micheline's own career — into a smaller number of accounts at one institution, reasoning it would be easier to track performance and contribution room in one place. An advisor there, Rejean, was assigned to handle the incoming transfers.

On paper, moving money between registered accounts at different institutions should not create any tax consequence at all, provided it is processed correctly as a direct transfer rather than as a withdrawal and a new contribution. Mai and Micheline signed the paperwork Rejean prepared, the funds moved, and for well over a year neither of them looked closely at how the receiving institution had actually recorded the transaction on its own books.

What the review found

The problem surfaced when Mai opened a Notice of Assessment from the Canada Revenue Agency showing an amount owing that neither he nor Micheline could initially explain. Pulling the account statements against the CRA's contribution records made the cause clear: at the receiving institution, a portion of the incoming RRSP transfers had been coded as new contributions rather than as direct transfers. Because the money being moved had already used up Mai's and Micheline's available contribution room at the sending institutions, coding it again as a fresh contribution meant it was counted twice against their limits — first when it was originally contributed years earlier, and again when it arrived at the new institution.

Combined across both spouses' accounts, the duplicate coding created roughly $460,000 in contributions that exceeded their available room. The Income Tax Act imposes a tax of one percent per month on the amount by which registered retirement savings contributions exceed a taxpayer's available room, calculated for every month the excess remains in the account. Because the error went unnoticed for about fourteen months — through two RRSP contribution seasons and a year of Mai focusing on winding down the sale of his business locations — the tax had been accruing on roughly $460,000 the entire time, working out to about $4,600 a month and a total assessment of roughly $64,400 by the time the Notice of Assessment arrived.

The good news, on review, was that the story behind the error was clean. Mai and Micheline had not tried to shelter more money than they were entitled to; they had genuinely believed, based on paperwork prepared by their own advisor, that they were moving already-taxed retirement savings from one account to another. The coding mistake was traceable to a specific step in a specific transfer, documented in writing, and not the kind of situation where a taxpayer had simply lost track of their limits.

What we did

1. Withdrew the excess amount immediately. The one percent monthly tax keeps accruing for as long as an excess contribution sits in the account, so the very first step, before anything else, was arranging for Mai and Micheline to withdraw the duplicated portion of the contributions. Removing the excess promptly is also a factor CRA weighs heavily when deciding whether to grant relief — a taxpayer who acts fast once the problem is found tells a very different story than one who leaves it sitting there.
2. Obtained written confirmation of the coding error from the institution. We contacted the receiving institution and pressed for a formal letter, addressed to the file rather than a verbal apology, confirming that the transfers in question should have been processed as direct transfers and had instead been recorded as new contributions due to an internal processing error. That letter became the central piece of evidence in everything that followed.
3. Reconstructed the full transfer timeline with source documents. We assembled the original transfer authorization forms, the sending and receiving institutions' account statements, and a month-by-month calculation showing exactly when the excess arose, how large it was at each point, and when it was finally corrected. CRA's relief decisions turn heavily on documentation rather than argument, and a precise timeline leaves far less room for the reviewer to guess.
4. Prepared a taxpayer relief request under the Income Tax Act's fairness provisions. CRA has discretion to cancel or reduce the one percent monthly tax where an excess contribution arose because of a reasonable error and the taxpayer took reasonable steps to fix it without delay once it was discovered. We built the submission around those two elements specifically — reasonable error, prompt correction — rather than a general complaint that the tax felt unfair.
5. Addressed the delay in discovery head-on. The fourteen-month gap before the error was caught was the weakest part of the file, and we did not try to hide it. The submission explained plainly that Mai and Micheline had relied on their advisor's paperwork in good faith, that nothing on their own account statements would have obviously flagged a coding problem at a different institution, and that they corrected the excess within weeks of actually discovering it.

The outcome

CRA accepted the relief request. Of the roughly $64,400 in tax originally assessed, the agency cancelled the large majority of it, leaving Mai and Micheline responsible for a modest residual amount reflecting a short window early on when the agency took the position that a more attentive account holder might reasonably have caught the discrepancy sooner. Even that residual portion was a fraction of the original bill, and nowhere close to the number on the Notice of Assessment that had first landed in Mai's mailbox.

What made the difference was not a clever legal argument — the tax itself was correctly calculated and genuinely owed under the strict wording of the rules. What moved the outcome was the quality of the story and the evidence behind it. Mai and Micheline had not tried to game their contribution limits; a specific, documented processing error by a third party had done that for them. They had acted quickly once they understood what had happened. And every claim in the submission was backed by a dated document rather than a recollection. That combination is exactly what the fairness provisions are designed to reward, and in this case it worked close to as well as a relief request can.

The couple also came away with a changed process going forward: Micheline now confirms in writing, before any future transfer between registered accounts, that the receiving institution has coded it as a direct transfer rather than a new contribution, and checks the resulting account statement against expectations within a few weeks rather than assuming the paperwork was followed correctly.

What you can learn from this