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New RRIF withholding tax rules may mean less income

New RRIF withholding tax rules may mean less income
New RRIF withholding tax rules may mean less income 
Written by Grant Hicks1 Comment
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 AmountRatePayments made up to $5,00010%Payments over $5,001 but no more than $15,00020%Payments in excess of $15,00030%
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 AmountsMonthly 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.

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