Personal Finance » Tax

Understanding withholding tax in retirement

Withholding tax is a reality for all working Canadians. Withholding tax is simply the amount of tax that was taken off each paycheque and remitted to Canada Revenue Agency (CRA) on your behalf.

Well, just because you retire does not mean that you will get away from withholding tax. Let’s take a look at withholding tax rates for withdrawals out of your RRSPs.

The basic rules

When taking money out of a registered plan like an RRSP or RRIF, withholding tax occurs at the same rates as lump sum single payments made to employees.

Withdrawal amounts  
Less than $5001 10% withholding
$5,001 to $15,000 20% withholding
More than $15,000 30% withholding

For periodic income payments out of a RRIF for example, there is no withholding tax until the RRIF minimum income is exceeded.

Differentiating between withholding tax rates and income tax rates

When it comes to taxes, it is only natural to try to pay as little tax as possible. I say it is part of human instinct. However, when it comes to withholding tax, it may not always be in your best interest to minimize withholding tax. The best way to illustrate this is to look at two twin brothers Larry and Ken.

Let’s say Larry and Ken both need $15,001 from their RRSPs in retirement to help pay for a trip to Europe with their respective wives.

Larry takes the $15,001 out at once. The financial institution is obligated to withhold 30%. This means that Larry would get $10,500 and there would be $4,500 remitted to CCRA on Larry’s behalf.

Ken takes a look at the withholding tax tables and decides that instead of taking $15,001 out at once, he is going to make 3 separate withdrawals of $5000. This way he is only subject to 10% withholding tax and he will get $13,500 instead of Larry’s $10,500.

While Ken may be ahead of the game initially, any withdrawals out of the RRSP must be taxed based on your marginal tax rates. If we assume that both Larry and Ken will be taxed at a 35% tax rate, here is what happens at the end of the year. Larry gets a tax slip saying that he took out $15,000 from his RRSPs and he will have to pay $5250 in tax. His tax slip also says that he has pre-paid $4500 in taxes so he still has outstanding tax owing in the amount of $750.

For Ken, he also gets the same tax slip saying that he must add $15,000 to his income and he will have to pay $5250 in tax. Ken however has only pre-paid $1500 in taxes so he will owe $3750 at tax time.

In the end, some might argue that Ken is better off because he has had the use of the tax money for part of the year. However, the point here is that you should not assume that withholding tax is the only tax that you will pay. If you utilize strategies to minimize withholding tax, remember that you may have to pay more tax at the end of the year.

Other withholding tax issues you need to understand

  1. Payments. As mentioned earlier, periodic payments out of a RRIF or annuity is not subject to any withholding tax to the extent that the income does not exceed the minimum income. Once the minimum income is exceeded, only the amount above the minimum income is subject to withholding.
  2. Withholding Tax Schedules. The withholding tax schedules are minimum withholding amounts. You can always ask to have more tax withheld at source but you cannot request less. Individuals, who are poor at budgeting, should consider more withholding at source. Ideally try to match the withholding rate to your marginal tax rate.
  3. CPP/OAS. When it comes to your government benefits, you can also request more tax withheld at source. Withholding tax can apply to all sources of income and not just RRSP/RRIF income.

So there you have the basics on understanding withholding tax in retirement. Remember, you can’t avoid the tax; you can just plan properly to ensure that you do not get caught misunderstanding how withholding tax works.


  1. My Own Advisor

    Interesting post…did not know…any amounts over RRIF minimums are subject to withholding tax.

    So, if your age is 65, and the RRIF balance at the beginning of the year is $100,000, and the minimum withdrawal is 4%, you would need to take out at least $4000 during the year to avoid withholding tax?

    If you take out more than $4,000, you’re subject to withholding tax?

    Do you have to keep track of these withdrawals yourself or can your discount brokerage account set up the minimums for you, so you only take out what you must?


    • Henry

      If you take out more than $4,000, the excess is subject to withholding tax. So if you take out $5,000 and your minimum is $4,000, you will only have tax withheld based on the $1,000. The excess (being $1,000) is less than $5,000 so your withholding rate is 10%. You would have $100 withheld on the $5,000 withdrawal

  2. Monika Hagele

    What about withdrawing $5000 each year separately until the 3rd year you are going to have your $15000 and you will be only pay 10% withholding Tax.

    • Brian So

      The withholding tax applies to each withdrawal from your RRSP, so you don’t have to separate the $5000 into different years, just different withdrawal dates.

  3. don

    Is there any limit to how many $5000 withdrawls you can make in a single year? If I took out $5000 every 2nd month, would I still only pay 10% each time?

    I am planning for my wife and I to withdraw $30k each from our RRSPs and thereby to be in a low tax bracket. In the end, we wouldn’t pay more than 10% tax when we file in April.

    Or is it better to wait until December, make a single $30k withdrawl and then file my income taxes as soon as possible to get the 30% withholding tax back?

    • Brian

      I have been told that if I try these numerous/subsequent withdrawals the bank can change the withholding tax (total $) so you are charged a higher w/d. (over 10%)……check with your bank….they are watching on behalf of CRA dometimes

  4. jp

    I have a question about this … what if you have NO income and withdraw less than $5,000 over the course of a year. Do you get some kind of refund on the withholding tax or will you always pay 10% minimum on any withdrawals.

  5. Dave

    If your only income for the year is the 5K then you would get the 10% (500) back from Revenue Canada after tax filing.

  6. Brenda

    I am divorced in 1991 never remarried. I received a tax free roll over for RRSP in my settlement. Because my ex-husband got the benefit of the tax deduction then, I believe that I am considered a Chattel and I no longer have to pay the tax on an RRSP, but this is my RRSP in title, but my ex-husbands responsibility as I am considered a Chattel for the tax payable upon withdrawal or RIF when it is cased in. Could a legal expert on Chattel law see if I am right. I believe that in making the husband the source of deduction over the wife’s contribution room the same year this initiates a new form of Chattel law and the wife is not responsible for RRSP or RIF tax upon cashing it ultimately.

  7. Dave

    Your husband did not get the deduction. You were married then so the tax deduction was a family asset which was divided in an apparently satisfactory way during your divorce in 1991. The after tax value of the RRSP in 1991 was easily determined and you apparently agreed with the settlement. Now 24 years later having had the benefit of the tax deferred RRSP accruing, you want him to pay the tax when you withdraw it?
    This would be similar to a division of pension benefits at time of separation .

  8. Brenda


    I have never held pension benefits and don’t know what the division would be at separation. Can you enlighten me.


  9. Dave

    Example: If a husband and wife are married for 20 years and the husband contributes to a pension plan over the 20 years he will have deducted the pension contributions each year on his tax and have accumulated 20 years of pension entitlement – which is a family asset.

    Then if they divorce the family asset (20 years of pension entitlement) will be divided 50/50. Therefore the wife will be entitled to a 10 year pension and the husband also to a 10 year pension.

    Later when the pension is paid his monthly amount is taxable to him and her monthly amount is taxable to her.

    In your case you received the RRSP in your divorce settlement and the responsibility for paying the taxes when it is withdrawn is yours.

    I expect there was a time when wives were treated as chattels but that was long before 1991. Canadian laws had before 1991 in the various Provinces made the principal of the division of family assets 50/50.

    In deed if you were a Chattel (Property except real estate) I expect you might have walked away with nothing from your marriage…. no RRSP. Your own word of “settlement” tells me you had marriage property rights recognized either by your agreement or by court award.

    • Brenda

      Back in the 70’s the RRSP changed to include the following:

      If a wife purchased and rrsp and if a husband purchased an rrsp in the same year. The husband had the right and the responsibility to legally to use the wife’s purchase of rrsp as a declaration and deduction on his income tax for that particular year. Thus making the wife a chattel.

      Now I think that this ruling not specifically states but does make the wife a “chattel” by the sheer fact that she looses the right to claim on her income tax. The responsibility has been shifted to her husband although she has the right to own the RRSP ultimately. So for a “chattel” person right can belong to the chattel but the responsibility belongs to the owner or spouse in this case. A chattel person has more right than a slave as chattels do have possessions and property but responsibility is the spouse.

      If the chattel is a wife. So I think now many years later, 40 + that some women are still under chattel law due to this decision of allowing the right to claim on income tax for rrsp to the husband although the right of ownership is the chattel or wife.

      Comment please.

  10. Brenda

    Jim I need a reply to the above!

  11. Dave

    “If a wife purchased and rrsp and if a husband purchased an rrsp in the same year. The husband had the right and the responsibility to legally to use the wife’s purchase of rrsp as a declaration and deduction on his income tax for that particular year. Thus making the wife a chattel.”

    Hmmm and I always thought they were called “spousal” RRSP’s and to the best of my recollection it was a always a separate account with different rules from a RRSP purchased either by a husband or wife for themselves. Of course spousal also means that a wife could purchase a “spousal” RRSP for a husband and then she would get the deduction. Does that make him the “chattel” in that case?

    Brenda is there some authority and information that you have which is causing you to want to pursue this issue or is it just a notion, left lingering from your own divorce?

  12. Brenda

    Hello Jim,

    I am 68 and have gone from RRSP to RIF and the person looking after the situation. Basically demanded that I pay the tax on the stored accumulation of account. I have not withdrawn since inception and I can’t remember the date but I do know that I was in Grade 9 in 1962 spring when I heard we were required to start the purchase of RRSP as the Government would not support us in our old age. I am old enough to know about chattel law and when I remembered that there was some kind of change in the RRSP about the husband claiming in the 70’s and there was talk of this as to right or wrong but the women’s movement was not strong enough then to rebel and demand separate entries. So I after giving thought to this situation felt that the husband had been given the responsibility but not the right to the women’s RRSP on claiming a tax deduction. Thus the woman in the eyes of the person who wrote up the bill was placing her into a chattel position by law. Because this happen so long ago, the lawyer looking into this didn’t even know what a chattel was let alone rights so I am on my own volition on my plight. At this point, I don’t really know where it is at but when I started thinking about who would be better off and who would be less off on RIF taxation I figured out if the ex husband in my case had to pay for the taxation it would definitely be much higher than mine as he is quite wealthy and I am pretty wealthy but do not match his money. I knew that there must be a reason for the shift to me to pay the RIF tax and it is because I would be paying less tax but I don’t think that this is my responsibility due to Chattel law and want to be exonerated and excused due to my being a chattel from this without blemish. My divorce was a chattel divorce and not a 50/50 split as I was separated in 1986 and divorced in 1991 I was after the family law change in I believe 1994. So my divorce was fresh and it also gave the lawyer an opportunity to go either way, I think. Also, I was given a offer by my ex-husband and I was not aggressive enough or knowledgeable enough to know otherwise and I believed that I could manage if I were prudent and frugal over my life which I have been and much to many amazement I have a sizeable RIF of approximate 740K in late November when I did RIF. I am basically wanting my chattel state acknowledge and want the person responsible for the Tax to pay it. I got chatteled out of marriage not split 50/50 out. Because of the advantage of the tax that I think people probably thought I would know nothing about but I do, I feel that I am being nicely put “taken advantage via ignorance” unfortunately I am not.

    This will be a game changer in the RIF community if I have a right through Chattel Law.

    Law is interesting. I should have been a lawyer. I just love it.

    Return a comment please, Thank you.

  13. Bangool

    The caculation of tax for Larry given by the author, in the example above is wrong. Larry does not pay that much Mr advisor!

    • Doug Runchey

      Bangool – It’s easy to say that someone else is wrong, but what’s the right answer?

  14. John Fry

    Interesting post for sure. If I am a non resident and receive a bulk pension amount of 100,000.00 AFTER the withholding tax, come tax time in the same year, will I pay tax again on this amount ?

  15. Ed

    Does anyone know if you remove say $40,000 in securities from your RRSP into your non-registered account, can you pay the RRSP withholding tax from the non-registered account cash balance or do you have to remove cash from the RRSP?

  16. Tim Burchill

    How does the withholding tax differs for LIF (LIRA’s) or is there no difference? Thank you.

  17. ER

    If I had my way, I would remove all laws on withholding taxes. These withholding taxes are infantilizing adults. We should have the right to pay tax only once a year. In writing a single big check each year, it would cause us to pause and consider if we are getting ‘value’ for what we pay. These withholding taxes server to hide that consideration

  18. Brian

    I have been advised that when an estate is settled……RRSPs/life…all assets are added together and then withholding tax is applied and THEN the beneficiaries receive the funds (this could be a loss of 40%)… this accurate?

    Also…..if I have beneficiaries listed on RRSP/life…can the funds transfer to their RRSP eligibility amounts..NO withholding tax?

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