In the following situations, can the taxpayer claim a deduction under s. 146(8.2) for the withdrawal of an excess (otherwise deductible) contribution made to the taxpayer’s RRSP?
(a) In 2016, the individual contributes the maximum deductible amount of $25,370 and then, later in the year out of inadvertence (and without the intention described in s. 146(8.2)(f)), contributes a further $30,000, so that there is a resulting cumulative excess amount (as per s. 201.2(1.1)) of $28,000. In order to cut off Part X.1 tax for 2017, the individual withdraws $30,000 in February 2017. However, also in 2017, the individual and employer contribute $26,010 to a group RRSP. Is the $30,000 withdrawal deductible under s. 146(8.2), and is the $26,010 contribution deductible under s. 146(5)?
(b) An individual makes an RRSP contribution that does not exceed the RRSP deduction limit for the year. However, later in the year, the individual wishes to withdraw the contribution and to not claim a deduction (for example, because of cash flow issues, or deciding that a TFSA contribution was preferable). If the conditions in ss. 146(8.2)(a) to (d) were satisfied, would s. 146(8.2)(e) preclude a deduction?
In finding that a deduction was not precluded in Situation, (a) and, perhaps, (b), CRA stated:
[T]he existence of an RRSP cumulative excess amount giving rise to Part X.1 tax is not a condition for the application of subsection 146(8.2). This provision can apply whether or not the annuitant is subject to Part X.1 tax at the time the payment is withdrawn from the RRSP.
…[T]he fact that, in situation (a), the payment received by the taxpayer in 2017 is more than the payment required to extinguish the tax under Part X.1 … [and] in situation (b), the taxpayer is not subject to tax under Part X.1 before receiving the payment would not in and of itself preclude the application of subsection 146(8.2).
…[U]nder [s. 146(8.2)(e)], if undeducted premiums have resulted in an overcontribution then, subject to paragraph 146(8.2)(f), the deduction will only be possible if such excess contribution was in fact made inadvertently. …
[I]n Situation (a), the $26,010 amount paid by the taxpayer to his or her RRSP after receiving the $30,000 amount would generally be deductible under subsection 146(5).