RRIF Withholding Information

RRIF Introduction

RRIF's are Registered Retirement Income Funds.

Under a RRIF type of arrangement:

1. a predetermined minimum amount must be withdrawn from the plan every year. This minimum is determined by a formula provided in the Income Tax Act and is determined at January 1 of each year;

2. the annuitant can also elect to have any amount in excess of the minimum paid to him or her in the year and may change this election at any time during the year; and,

3. income tax must be withheld at source on amounts in excess of the minimum using the lump-sum withholding tax rates. No withholding is required on minimum amounts.

Payments are Subject to Withholding

In general terms, a payment from a RRIF in excess of the “minimum amount” is subject to tax deductions at source using the lump-sum withholding rates noted below.

The withholding amount is normally computed on the excess portion of each individual lump-sum payment. However, if withdrawals are in the nature of instalments made in fulfillment of a single request by the annuitant, it is the Canada Revenue Agency’s (CRA) position that the rate of withholding on each individual payment should be based on the total sum requested and not on each individual payment. In these situations, the CRA considers these periodic payments to be blended payments (i.e. part minimum amount and part instalment or excess). Accordingly, the latter portion would be subject to withholding tax at the rate that would apply had the annuitant ‘elected’ to receive one lump-sum payment in the year equal to the amount by which the total instalment payments in the year exceed the minimum amount for the year.

In a situation where an annuitant receives monthly instalment payments and submits a request for an additional amount during the year, the CRA views this as a separate request and only requires withholding on the excess portion of that specific payment regardless of the amount of the ongoing instalment payments. However, where it appears that an annuitant is making separate requests in order to minimize the income tax withheld, for example, where a series of requests are made in a short period of time, it is our position that the withholding rate should be determined as if there was one request equal to the total of all amounts requested. Thus, a higher withholding rate could apply.

Note: It may be advantageous to the annuitant’s overall tax liability if the tax rate applicable to the aggregate of the payments for the year is used rather than the lower rate determined on the additional withdrawal.

Payments Not Subject to Withholding

Payors are not required to deduct income tax from a lump-sum payment (including RRIF amounts) where the taxpayer’s reportable income from “all sources” indicates there will not be a tax liability when their personal income tax return is filed. Taxpayers may complete Form TD1 Personal Tax Credits Return certifying their total eligible tax credits will be more than their taxable income for the year and provide it to the financial institution or carrier of the plan.

Withholding Rates

Use the following withholding rates for lump-sum payments:

1. 10% if the payment is not more than $5,000;

2. 20% if the payment is more than $5,000 but not more than $15,000; and

3. 30% if the payment is more than $15,000.

These rates are only estimates. Since no tax is withheld at source on the minimum amount, annuitants of these plans are required to pay the tax attributable to such payments no later than April 30 of the year following the year in which they are received, unless they are required to make instalment payments.

Annuitants may exercise their discretion and request the payor increase withholding tax in order to reduce or eliminate a future tax liability. Form TD1 Personal Tax Credits Return is used for this purpose.

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