Comments on: Minimizing the RRSP Withholding Tax on Withdrawals

By: Beneric

Beneric — Wed, 23 May 2012 05:38:46 +0000

Hello there.
I currently am looking into ways to withdraw my rrsps for a home renovation that has gone over budget. Obviously not the ideal situation, but what are my best options? Withdraw and bite the withholding tax? My wife is the official home owner (and also a first time home buyer) Can these rrsps (solely in my name) be used by her?

By: tlcelerian

tlcelerian — Tue, 06 Mar 2012 00:19:37 +0000

I have a question that I really need help with. My mother currently has about $140,000 in RRSP. She is go years of age and only has an annual income of around 20,000. We are starting to think about her moving in with us, but she would like to give us a lump sum of money for her living expenses, instead of a monthly payment. If she were to withdrawal 40,000 of that money in her RRSP, what kind of tax should she expect to pay.

By: Burt

Burt — Tue, 28 Feb 2012 05:53:18 +0000

@Preet Thank you for answering so quickly.

By: Preet

Preet — Mon, 27 Feb 2012 07:41:48 +0000

Hi Krit – thanks for watching!

Yes, the spousal credit is reduced dollar for dollar with income until eliminated at $10,xxx. http://blog.taxresource.ca/line-303-spouse-or-common-law-partner-tax-credit-amount/
The credit is then multiplied by the lowest tax bracket. I suggest speaking with an accountant for verification of course.

RRSP withdrawals can only be claimed in the calendar year of withdrawal unfortunately.

By: Preet

Preet — Mon, 27 Feb 2012 07:29:46 +0000

@Burt It would be $10,000 for 2012. Withdrawals are counted only in the calendar year of withdrawal. Contributions in the first 60 days of the year can be used for the current year or prior year, but withdrawals are only in the current year. Hope that helps.

By: Burt

Burt — Mon, 27 Feb 2012 07:16:42 +0000

One question as I could not get the answer anywhere on the net. I know if I withdraw any money from RRSP it will become an additional income to the one I have, I also know that usually the deadline for contribution to the RRSP is end of February for previous year and after that if contribute any money it will go to the current year. But what about withdrawal if you withdraw money from RRSP, say on 15 of January 2012 and again on 15 March 2012 and each time $5000.00 is income of 10,000.00 for the year 2012 or is it 5000.00 for the year 2011 and 5000.00 for year 2012?

By: krit

krit — Wed, 22 Feb 2012 04:08:37 +0000

Hi Preet,

Have watched you on TV, and just read the ‘About Preet’ page. WOW! :)

I have a spousal RRSP for my wife in which I last deposited 10K in 2006. Therefore if I withdraw money now, it will be taxed to her. She had 6K income last year and this year she’s taking maternity with very little benefit expected.

While tinkering with the numbers I’m finding that if she takes out the money this year, where she will have no income, I will lose the spousal amount. That in itself will be more than if she paid taxes on the withdrawal at the minimum tax rate. So I’m finding out that it is more expensive to withdraw when she has no income, than when she has some income and the spousal amount is exhausted.

Quite a few of my friends cant believe this either but we cannot find any info on this. Can you please help answer this? Also is there a way to withdraw now (in February 2012) and still add it to my wife’s 2011 tax return?

Thanks in advance!

By: Marcus123

Marcus123 — Thu, 16 Feb 2012 14:23:51 +0000

Hi Preet, great site. We have lived in Canada about 10 years and have just over 10k in RRSPs, moving to US midyear 2012 and wondering if would be wise to cash in RRSP before we go. I realize that I will need to pay withholding tax, but we do want to clear up debt of 10k before we go as well. Should I withdraw before we leave or after or doesn’t it matter? We are in a higher tax bracket.

By: Preet

Preet — Thu, 16 Feb 2012 06:03:34 +0000

Yes – you are missing the final reconciliation of the tax owing when you file your taxes for that calendar year. The withholding tax is only a “down payment”. For example, if your friend is in the 31% tax bracket and deregisters $10,000 the tax owing will be $3,100. If $2,000 is withheld at time of deregistration, then $1,100 would be owing when he filed his taxes. Does this make it more clear?

Also, a word of caution when providing friends with financial advice: you can give him food for thought but you should really encourage him to speak with a professional. Sometimes it can come back to bite you, especially if they misinterpret your advice, or if you provide inaccurate advice.

Thanks for your question

By: Teej

Teej — Thu, 16 Feb 2012 02:53:47 +0000

Hi Preet,

I’m currently advising a friend of mine about making RRSP contributions to be used toward the Home Buyer’s Plan (HBP) down the road. He works freelance, and is concerned that he’ll be heavily taxed if he needs to withdraw his RRSP contributions in case of emergency, before he ends up using the money toward the HBP. I just want to make sure I understand the Withholding Tax correctly to give him the proper advice.

Let’s say I put $10000 into my RRSP’s, and given my tax situation this ends up reducing my taxes paid and leads to a $3100 tax refund for me that year (which works out to 31% of my contribution money back at tax time). Then 8 months later (well past the 89-day marker) I choose to withdraw $10000 from my RRSPs due to an emergency, and I would therefore be forced to pay the 20% withholding tax (in Ontario), which would be $2000. Am I not still benefiting — I reduced my taxes by $3100 upon making the contribution, and then got dinged for $2000 by withdrawing early — as I seem to still be $1100 ahead? Is there anything I’m missing here?

Thanks in advance for your advice.