Creating Tax-"Free" Withdrawals of Your RRSP/RRIF
By: Gregory Dobson, CMA, CFP, EPC

Let us all agree that tax – “free” doesn’t exist.  But let us discuss the possibilities of minimizing the income tax on voluntary withdrawals of your registered plans.

When you withdraw funds from an RRSP your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw. For residents of Canada , the rates are, 10% (5% in Quebec ) on amounts up to $5,000; 20% (10% in Quebec ) on amounts from $5,000 to $15,000; and 30% (15% in Quebec ) on amounts over $15,000.  For non-residents of Canada , withholding is 25% unless reduced by a treaty.

Now remember the combined federal and Ontario personal income tax rate for taxable income between $37,886 and $63,430 is 31.15%, aside from other available provincial and federal tax credits that might be available. In addition we are all aware that the first $9,600 of income incurs zero income taxes.

And here are the possibilities:

1. Move to a foreign country in which there is a tax treaty; See IC76-12R6, Applicable rate of part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax convention.
2. Withdraw an amount between $0 and $9,600 during the year you earn NO other sources of taxable income; This would also include during the year of death.
3. Utilize offsetting tax deductions to your advantage during the year that you begin withdrawing your RRSP; Specific examples can be found on Page 3 of your Personal Income Tax Return.
4. Utilize effective estate planning inside your Last Will and Testament if you should die leaving behind young children under the age of 18;

Each of the above and a few more require a thorough review of ones own personal circumstances.