With the exception of the First-Time Home Buyers' Plan, the Lifelong Learning Plan and registered transfers to another registered plan, RRSP withdrawals are subject to withholding taxes. If you redeem a portion of your mutual funds, the proceeds may also be subject to Deferred Sales Charges (DSC).
Withholding Tax on Withdrawals
The withholding tax rate that is applied depends on the amount requested to be withdrawn and whether or not the investor resides in Quebec.
|GROSS AMOUNT||FEDERAL TAX|
|$5,000 or less
|$5,001 - $15,000
|$15,001 or more
|GROSS AMOUNT||FEDERAL TAX||QUEBEC PROVINCIAL TAX *|
|$5,000 or less
|$5,001 - $15,000
|$15,001 or more
AGF's Withholding Tax Policy
- Withholding tax on Systematic Withdrawal Plans (SWP) is based on the total projected amount of the SWP over the calendar year.
- For lump-sum withdrawals, the total amount taken out each day will be considered.
Lifelong Learning Plan (LLP) and the Home Buyers' Plan (HBP)
- The LLP permits withdrawals of up to $10,000 in a calendar year from an RRSP to finance full-time training or education for the planholder, or the planholder's spouse / common-law partner.
- The HBP enables planholders to withdraw up to $25,000 in a calendar year from their RRSPs to buy or build their first home or a home for a related person with a disability.
- For both plans, eligible withdrawals are not included in income and tax is not withheld on these accounts.
- The amount of the withdrawal must be repaid to an RRSP in the planholder's name over a period of no more than 10 years for the LLP and 15 years for the HBP.
- With a Spousal RRSP your clients can split income in retirement and reduce their combined tax rate. It allows the spouse earning the higher income to contribute to an RRSP owned by the spouse earning the lower income.
- The spouse with the higher income takes the immediate tax deduction and the money in the RRSP is taxed to the other spouse when it is withdrawn - often at a lower rate.
- All or a portion of RRSP contributions can be contributed to an RRSP in a spouse's name. For example, an investor with contribution room of $7,200 for this year can contribute $5,000 to their own RRSP and $2,200 to a spousal RRSP.
- The spouse does not need to have earned income or their own contribution room.
- Contributor receives a tax deduction, but their spouse is the registered owner/annuitant of the plan. Contributions can be made by a common-law spouse (as defined by CRA).
- An annuitant can have a spousal plan and a non-spousal plan. If combined, certain withdrawals may be subject to attribution rules.
- If the contribution to any spousal plan is made in the year of withdrawal, or in the two previous years, the contributor must include in their income the lesser of the amount withdrawn, or whatever they contributed for those years.
- Form T4RSP is issued to the spouse, but contains the contributor's name and SIN.
- Contributor and spouse determine if the attribution rule applies. CRA Form T2205 should be completed and attached to both tax returns.
- There is a $2,000 lifetime over-contribution limit.
- Penalty tax of 1% per month on the over-contributed amount may apply until withdrawn from the plan.
- Over-contributions can be used as deductions in future years or transferred to a non-registered account.
- May be withdrawn in cash or in kind without tax consequences if the over-contribution is deemed to have been accidental. Withdrawn amount is included as income, but offsetting deduction is available if required steps are followed.
- Planholder must complete Form T3012A and then have it certified by CRA. Keep a copy of the form and forward the original to the plan administrator (AGF) to request a refund. A copy of the form must also be included with the planholder's tax return.
- Form T746 should be completed to determine the deduction. A copy of the form must be included with the planholder's tax return.
- Alternatively, over-contributions can be withdrawn, subject to withholding tax, and the withholding tax then claimed for a credit on the planholder's tax return.
Death Of A Registered Plan Holder
- The fair market value (FMV) of investments held in a RRSP at the time of an RRSP annuitant's death is generally included in the income of the deceased for the year of death.
- A subsequent increase in the value of the RRSP investments is generally included in the income of the beneficiaries of the RRSP upon distribution.
- Where the final distribution of property from a deceased annuitant's RRSP occurs on or after January 1, 2009, the amount of post-death decreases in value of the RRSP can be carried back and deducted against the year-of-death RRSP income inclusion.
- Exception - Spouse or common-law partner is the sole beneficiary of the RRSP. If the following two conditions are met, the deceased annuitant is not considered to have received the FMV of the RRSP at the time of death:
1) The spouse or common-law partner is named in the RRSP contract as the sole beneficiary of the RRSP; and
2) By December 31 of the year following the year of death, all the RRSP property is directly transferred to an RRSP or a RRIF under which the spouse or common-law partner is the annuitant (or to an issuer to buy an eligible annuity for the spouse or common law partner)
Please note: Investors should seek professional advice on estate planning. The information on this website is by no means exhaustive or to be used instead of professional tax advice.