Non-residents of Canada can have both 15% or 25% tax withheld on a RRIF withdrawal, based mostly on the tax treaty (or lack thereof) of their nation of residence.
What are the withholding taxes for a number of RRIF withdrawals?
Right here’s what the Canada Income Company (CRA) says about withholding tax for Canadian residents who make a collection of RRIF withdrawals: “It’s the CRA’s longstanding place that, when qualifying lump-sum funds are cut up into a number of funds (i.e. month-to-month, quarterly, semi-annual instalments) and every cost is made in achievement of a single request by the annuitant [RRIF owner], the withholding price is predicated on the whole ‘elected’ portion requested and never on every particular person instalment cost.”
If every cost is a separate cost, the decrease price of withholding tax applies to every. Utilizing your instance, Anne, in case you request six further funds of $1,100, the cumulative extra is $6,600 and the 20% withholding tax price would apply. However in case you made six particular person requests for $1,100, there could solely be 10% tax withheld at supply.
CRA says that monetary establishments can use their discretion, but when the whole funds for the 12 months are recognized prematurely, it expects establishments to withhold the suitable tax price based mostly on the whole.
Right here’s one other factor to remember, Anne: The withholding tax price actually solely issues within the brief run, from a cash-flow perspective. In the long term, RRSP and RRIF withdrawals are totally taxable, with any withholding tax credited in the direction of tax payable. Once you file your tax return, the CRA will decide the precise tax payable on the RRSP/RRIF earnings, and this will lead to an extra stability owing or a refund. All of it is dependent upon your whole earnings, tax deductions and tax credit for the 12 months.
RRIF withdrawals and pension earnings splitting
It’s also price mentioning that in case you are over 65, RRIF withdrawals are eligible for pension earnings splitting. As much as 50% of your RRIF withdrawals might be moved to your partner’s or common-law companion’s tax return, no matter their age, to reduce your mixed tax. Not solely does the earnings get allotted to your companion, however the withholding tax is allotted on a pro-rata foundation, as effectively. So, if 20% tax is withheld on the pension earnings, 20% tax shall be transferred from one partner to the opposite on the cut up pension earnings.
In abstract, Anne, you could qualify for the decrease 10% tax withholding by taking your incremental RRIF withdrawals past the minimal as separate requests, however the tax owing on April 30 would be the identical whatever the tax withheld at supply.
Jason Heath is a fee-only, advice-only Licensed Monetary Planner (CFP) at Goal Monetary Companions Inc. in Toronto. He doesn’t promote any monetary merchandise in any way.