New RRIF withholding tax rules may mean less income

A recent Canada Revenue Agency (CRA) regulation interpretation has had an effect on Registered Retirement Income Funds (RRIF's).

In many cases this will mean a lower monthly payment as a result of increased tax withholding. In the case of RRIF payments, considered to be a series of scheduled withdrawals, the tax withholding rate is now to be based on the total of annual payments in excess of the RRIF minimum. This minimum is determined by a formula provided in the Income Tax Act and is determined at January 1 of each year and changes as you get older.

CRA requires payment from a RRIF in excess of the “minimum amount” is subject to tax deductions at source using the withholding rates noted as:

RSP Withdrawal or Annual RRIF Excess Amount Rate
Payments made up to $5,000 10%
Payments over $5,001 but no more than $15,000 20%
Payments in excess of $15,000 30%

For example, Shirley from Qualicum Beach has made a request to have monthly payments of $1,000 per month totaling $12,000 from her RRIF plan.

Annual Amounts Monthly Amounts
$12,000 scheduled annual payment $1,000 monthly payment
$4,800 annual RRIF minimum $400 monthly minimum
$7,200 annual excess amount $600 monthly minimum

Prior to this change, the rates were based on the monthly amounts once the minimum was met. For example, last year $60 dollars of withholding was required. $600 monthly excess at 10%, resulting in a net monthly payment of $940.

Based on CRA's change this year, the tax withholding rate now considers the sum of all annual payments in excess of the RRIF minimum. This translates to $120 dollars of withholding, $600 at 20%, resulting in a net monthly payment of $880. Another $60 of monthly income is now paid to CRA lowering Shirley's monthly income by the $60. However if Shirley had the funds in two different financial institutions the withholding tax increase may not apply since each institution withholds a lower amount, say 10% instead of 20%.

It will still also depend on her total annual taxable income but proper planning may help Shirley preserve her same monthly income and pay less tax on a monthly basis.

Written by Grant Hicks

Grant Hicks, C.I.M., FCSI is a professional speaker, co-author and a Retirement Planning Specialist with Manulife Securities and Hicks Financial. A leader in the financial industry, Grant has been helping Vancouver Island residents plan and create their retirement lifestyles since 1989.

2 Responses to New RRIF withholding tax rules may mean less income

  1. Sorry, the example does not make sense. The new rules notwithstanding, under the old rules, Shirley would have been deducted withholding taxes of $120/mo anyway, not $60, as she was withdrawing in excess of $4.999….i.e.$7,200.

  2. If I am 60 yrs and want to start taking my annual minimum rif payment… would you mind clarifying a couple of questions please..
    — is it correct that if I take my 1st min rif payment the yr I switch my rsp’s to a rif there would be 10% wh tax? If I wait til the second yr there would NOT be any wh tax on the minimum amount?
    — so, if I do start to withdraw the min payment , I could put that in a Tfsa or savings without wh tax to start unlocking some of my money tax free? (I do realize it is taxable income)
    —right now I’m not working and will be looking for part time work. We are both semi or retired and with still paying a mortgage, the pension payment my husband receives is making us struggle and I’m afraid we will turn to credit cards.

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