Unless the taxpayer files a claim, there aren’t any withholding taxes on the minimum RRIF distribution. This may lead to the Canada Revenue Agency (CRA) requiring quarterly tax installments in the longer term: upon filing a tax return if the web taxes owed (taxes owed less taxes deducted at source) exceed $3,000.
If this appears to be an annual event, it’s advisable to pay the tax installments since the CRA will charge installment interest on the outstanding or late amounts, says Ardrey. “That interest rate is currently 10%.”
(Of course, when you pay an excessive amount of in installments, the CRA won’t pay you any interest.)
Another consideration is withholding tax. These are the identical as your final tax bill (after your death), says Birenbaum, but as a substitute it’s “a standard percentage that the government charges upfront to ensure it receives (at least some) tax on RRSP or RRIF withdrawals.” .” If you are over 60 and have ever withdrawn money out of your RRSP, you already know that you just pay 10% withholding tax for withdrawals of $5,000 or less, 20% between $5,001 and $15,000, and 30% over $15,000. In Quebec the amounts are higher.
However, different rules apply to RRIFs. No withholding taxes are required on minimum withdrawals. Outside Quebec, the identical withholding taxes apply to RRSPs, says Birenbaum. For systematic withdrawals, withholding taxes are based on each individual payment, but on the overall amount requested within the 12 months that exceeds the required minimum withdrawal.
You don’t necessarily wish to pay the smallest withholding taxes, as many may know from RRSP withdrawals of their 60s. You can at all times request payment of upper withholding tax upfront on RRIF withdrawals when you expect to owe more at tax return time as a result of other retirement and capital gains. You also can put aside a portion of the RRIF proceeds in a savings account for future tax liabilities.
Do RRIFs trigger OAS clawbacks?
An additional complication of additional RRIF income is that it will possibly trigger clawbacks of retirement savings (OAS) advantages. If your total income exceeds $90,997, the OAS payments will probably be clawed back by $0.15 for each dollar above that quantity until they reach zero.
Income Splitting with a RRIF
Fortunately, there are methods to reduce these tax consequences. If you’re one half of a pair, you could profit from a type of retirement income splitting: RRIF income may give you the chance to be split on a tax return with a spouse if the taxpayer is over 65 years old. A $2,000 income split can provide a pension tax credit for the spouse, which might make the difference in whether or not they’re affected by the OAS clawback.
