Personal Finance » Tax

What is withholding tax? Understanding withholding tax in retirement

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

Just because you retire does not mean you can get away from withholding tax. Let’s take a look at withholding tax rates for withdrawals out of your RRSPs.

The basic rules of tax withholding

When withdrawing money from a registered plan like an RRSP or RRIF, withholding tax is deducted at the same rates as it would from an employee’s paycheque.

Less than $500110% withholding
$5,001 to $15,00020% withholding
More than $15,00030% withholding

Note that for regular RRIF withdrawals, 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 income taxes, it is only natural to try to pay as little federal income 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.

To illustrate this, let’s 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 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 the government 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 three separate withdrawals of $5000. This way, he is only subject to a 10% withholding tax and 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 a tax bill in the amount of $750.

Ken 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, resulting in a $3750 tax liability.

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 from a RRIF or annuity are not subject to any withholding tax to the extent that the income does not exceed the annual minimum payment. Once the minimum payment 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 request more tax withheld at the 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.

A note about withholding taxes on paycheques

As mentioned, employee paycheques are subject to withholding tax, and most employees accept the taxes withheld. However, employees can request an increase or decrease in the amount of income tax their employer withholds. If they find that they typically owe money at tax time, they may want to have more income tax deducted at source.

On the flip side, if they usually receive a large tax refund, they may want to reduce the amount of income tax deducted.

To increase your income tax deductions, you’ll need to fill out a revised TD1 form. To reduce your income tax deductions, you must complete Form T1213.

Final Thoughts on Withholding Tax

There you have it, the basics of 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

      • Brian T

        The example is false as the banks adjust based on the annual total of deductions. My wife takes $5000 out per month from her RRIF and gets a 10% hit on the first month and 20% on the second month and 30% on every month thereafter until the next year.

        With income splitting with my pension, we usually overpay by about 10K annually which heads over to our TFSA.

  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!

    • Brian T

      There is no way that tax can be avoided on withdrawal of an RRSP. Well not no way but the loopholes are steadily being closed. Don’t count on mid-70’s laws applying to withdrawal of RRSPs unless you are willing to fight a long and difficult legal battle with the CRA or your husbands lawyer.

  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.

    • Christine

      Hi Brenda,
      What country are you in? Nothing you are saying makes any sense according to current Canadian law.
      If you received property as the result of a settlement, the asset is now owned by you and you are solely responsible for taxation upon withdrawal.

  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 ?

    • Another Brian

      If you are really non-resident, you will not be liable for Canadian tax. The witholding tax depends on the tax treaty between Canada and the other country you are resident in. You must be resident somewhere. In my case I am resident in the UK and the government does not withhold any tax on my OAS or CPP, and the bank does not withold any tax on my RIF withdrawals. I have to declare my pension income to the UK an am taxed here. Otherwise there would be double taxation.

  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?

    • Michael

      I do this annually and they take the withholding tax out of the RRSP account as that is how it works.

  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?

  19. Ron

    Most articles related to withholding taxes are nonsense and not worth the electrons they are written on. Think about it. If you only need $5,000 – $15,000, would taking money out of your RRSP be a great choice or your first choice? But if you really did need this money for something important, you probably are in a lower tax bracket anyway. Taking lump sums out of retirement funds typically goes against any best practices and should be reserved for emergency type situations, not discretionary spending such as a trip.

    All that to say… 1.) Perhaps they should have converted their rrsp to rrif already (of course, this depends on age and personal circumstances). In that case, there may not even be any withholding tax, depending on their minimums 2.) If you have to worry about increasing or decreasing the amount withheld and fill out forms in retirement, maybe you aren’t really ready ready for retirement yet. The amount of savings you would actually see is minimal, if any, depending on your circumstances. (* reducing withholding tax while you are working is different. You conceivably have several decades ahead of you, so lots more opportunity for the effects of compounding)

  20. Brian Lorch

    Can you explain how holding tax works on an in-kind withdrawal of shares from a RIF that are moved to a non-registered investment account. Say you withdraw shares with a market value of $10,000. Is the 20% withholding rate applied to the $10K which would mean you have to have $2K in cash in the account to pay the tax on the $10K. Is that correct or is the math slightly more complicated? Thanks

    • Dave in Georgetown

      In order to transfer a net amount of $10k in shares (or withdraw in cash) you would actually need to request $12,500 which would include $2500 tax ($12,500 x 20% = $2500; $12,500 – $2500 = $10,000).

      The amount you need to request needs to include the withholding tax.

      • Brian

        Thanks Dave

  21. Dave P

    When withholding amounts are low resulting in a higher tax liability and if that tax liability is above a threshold value, it can trigger a request for you to make installment payments in the subsequent year. It is better to withhold tax at your marginal tax rate and avoid the issue of installment payments completely.

  22. Anonymous

    At age 60, I converted my RRSP to a RRIF, and started to withdraw the minimum amount. The following year I continued with the minimum, but took out $20 $5kk in 4 installments. The payments were taken from the same investment account. The minimum payment was not taxed at source, however each of the 4 installments were taxed at the tax rate associated with the cumulative amount. Therefore, the first $5k was taxed at 10%; the second and 3rd $5k were taxed at 20%; and the last $5k was taxed at 30%. This was not as Jim explained in his article.

  23. Antonina

    The question: how to claim paid- out tax on rrsp withdraw deducted?

  24. Sandra

    What is the age when I should turn my RRSP into a RRIF? I am 68 and retired last year. Is 4% the minimum/best amount I can take out per year to avoid higher taxes on larger amounts? I will soon become a non-resident and I have read on the CRA website that the withholding tax is 25% on all income from Canadian sources. How does that work? Someone here said non-residents do not pay withholding taxes as they pay taxes where they live. What should I do with the money I get for the house? My intent and purpose is to pay as little tax as possible so I am looking for legal loopholes or perhaps best arrangements, least taxable. Thank you.

  25. George

    Regarding RRSP withdrawals, people grumble about withholding taxes but I think they can be used to your financial advantage, come every April 30th, of planning to avoid a higher tax bracket if possible and having the lowest amount owing the CRA . No tax refund but no big hit to your wallet either. The benefit in the old days of avoiding a withholding tax so you could wisely invest the difference owing for the year is much diminished, I think. The rates of return aren’t there and I’m sure there are extra costs and hidden fees to consider too. If you have a company pension, consider adjusting its withholding tax, and the same for your CPP and OAS, with the above mentioned goal of planning your tax bracket and April 30th owing. Having done all that,
    perhaps a good approach would be to do your RRSP withdrawal in November, followed by a TFSA deposit in December. A withholding tax might then smart less, you’ve got your TFSA done for the year, and you’ll be in better shape with your tax bill in April.

Leave a reply

Your email address will not be published. Required fields are marked*