I need to withdraw $6,600 from my RRIF over the next six months. This amount is in addition to my annual minimum. If I do the withdrawals in six monthly amounts of $1,100 (total of $6,600), will the tax withholding rate be 10% on each $1,100, or will it be a higher rate on the total $6,600 over the six-month period?
–Anne

Before we look at the withholding taxes on withdrawals from registered retirement income funds (RRIFs), let’s first review the withholding taxes on withdrawals from registered retirement savings plans (RRSPs).

What is the RRSP withholding tax?

RRSP contributions are tax-deductible, and income and growth are tax-deferred. However, withdrawals from an RRSP are taxable and generally subject to withholding tax, unless they are made using the Home Buyers’ Plan (HBP) for an eligible home purchase or the Lifelong Learning Plan (LLP) for qualifying post-secondary education.

Withholding tax is the percentage of your withdrawal that is kept at the source, which is the financial institution where you hold your RRSP. The amount of withholding tax depends on the size of the withdrawal.

For residents of Canada except Quebec, these are the rates for withholding taxes:

10% on amounts up to $5,00020% on amounts over $5,000 up to $15,00030% on amounts over $15,000

In Quebec, the federal withholding tax rates for the same ranges are 5%, 10% and 15%, respectively, plus there’s a 15% provincial tax.

For non-residents of Canada, the withholding tax for an RRSP withdrawal is typically 25%, unless their country of residence has a tax treaty that reduces the rate.

What are the RRIF withholding tax rates?

The withholding tax rates change when an RRSP is converted to a RRIF. Minimum RRIF withdrawals are based on the age of the account holder and must begin no later than age 72. They range from 5.4% of the account value at age 72 to 6.82% at age 80 and 20% at age 95 or older. There is no income tax required on the minimum RRIF withdrawal for the year. However, if additional withdrawals are made, those withdrawals are subject to withholding tax.

The RRIF withholding tax rates are the same as for RRSP withdrawals—that is, the 10%, 20% and 30% rates listed above for withdrawals up to $5,000, over $5,000 up to $15,000, and over $15,000 respectively. (In Quebec, the rates are 5%, 10% and 15% for federal tax, plus a 15% provincial tax.) These rates apply only to the amounts in excess of the minimum withdrawal, not the entire withdrawal.

Non-residents of Canada will have either 15% or 25% tax withheld on a RRIF withdrawal, based on the tax treaty (or lack thereof) of their country of residence.

What are the withholding taxes for multiple RRIF withdrawals?

Here’s what the Canada Revenue Agency (CRA) says about withholding tax for Canadian residents who make a series of RRIF withdrawals: “It is the CRA’s longstanding position that, when qualifying lump-sum payments are split into multiple payments (i.e. monthly, quarterly, semi-annual instalments) and each payment is made in fulfillment of a single request by the annuitant [RRIF owner], the withholding rate is based on the total ‘elected’ portion requested and not on each individual instalment payment.”

If each payment is a separate payment, the lower rate of withholding tax applies to each. Using your example, Anne, if you request six extra payments of $1,100, the cumulative excess is $6,600 and the 20% withholding tax rate would apply. But if you made six individual requests for $1,100, there may only be 10% tax withheld at source.

CRA says that financial institutions can use their discretion, but if the total payments for the year are known in advance, it expects institutions to withhold the appropriate tax rate based on the total.

Here’s another thing to keep in mind, Anne: The withholding tax rate really only matters in the short run, from a cash-flow perspective. In the long run, RRSP and RRIF withdrawals are fully taxable, with any withholding tax credited towards tax payable. When you file your tax return, the CRA will determine the actual tax payable on the RRSP/RRIF income, and this may result in an additional balance owing or a refund. It all depends on your total income, tax deductions and tax credits for the year.

RRIF withdrawals and pension income splitting

It is also worth mentioning that if you are over 65, RRIF withdrawals are eligible for pension income splitting. Up to 50% of your RRIF withdrawals can be moved to your spouse’s or common-law partner’s tax return, regardless of their age, to minimize your combined tax. Not only does the income get allocated to your partner, but the withholding tax is allocated on a pro-rata basis, as well. So, if 20% tax is withheld on the pension income, 20% tax will be transferred from one spouse to the other on the split pension income.

In summary, Anne, you may qualify for the lower 10% tax withholding by taking your incremental RRIF withdrawals beyond the minimum as separate requests, but the tax owing on April 30 will be the same regardless of the tax withheld at source.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

Read more from Jason Heath:

Should you borrow to invest with the Smith Manoeuvre?The tax implications of owning multiple properties during probateShould you loan money to someone who is house rich and cash poor?The tax implications of transferring a stock between spouses

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