Friday, October 1, 2010

Withdrawals from RRSP

RRSPs are for saving money for your retirement but some times you may have to take money for some urgent needs. But when you redeem there will be withholding taxes taken at source before you receive the money. If you withdraw money under Home Buyers Plan or Life Long Learning Plan, there will not be taxes withheld for those.

For example, if you (Ontario resident) redeem $4,500.00 from the plan, you will receive $4,050.00 and the financial institution will remit CRA the balance $450.00 as taxes (10% tax see below. At the end of the year, you will include the $4,500 in your income and $450.00 as tax paid. Based on your other income you may get a refund or you will pay more taxes for the withdrawal when you file income tax return for that year.



Amount Withdrawn
Withholding Tax Rate (Except Quebec)
Quebec Resident Federal
Quebec Resident Provincial
Total Quebec Withholding Tax
$0 - $5,000
10%
5%
16%
21%
$5,001 - $15,000
20%
10%
16%
26%
$15,001 and over
30%
15%
16%
31%



Other scenario is what happens when you move out of Canada and become non resident. Generally there will be 25% withholding taxes but if there is a tax treaty with the other country then the tax rate may be lower.

6 comments:

blue_ruby said...

ooh, good to know about the home buyers plan...I'll be heading down that route soon!

blue_ruby said...

^ SC = bluejellybean ^

Belinda Skuta said...

This is good information that I will pass on to my mom as she has an RRSP (I dont yet :() I learnt about a lot of these things in accounting at college but this stuff was way over my head! I will be bookmarking your blog! Thanks!
SC User Name: elliott_gyal

Keeks said...

Very informative, thank you! SC Keeks

nickie_anne said...

Thank you for the useful information :-)
SC= nickie_anne

contestcrazymom said...

Good to know ! thanks !
SC - dimifrandz