Source Deductions on RRSP Withdrawals

by Sean Ross

1 min read

Financing can be difficult to find for a new business. Many budding entrepreneurs reach into their retirement savings to fund their new endeavours. Withdrawing funds from a registered retirement savings plan may be a good source of capital, but there are tax consequences. Upon withdrawal, there is an initial withholding that must be made by the financial institution where the RRSP is kept. The amount of withholding depends on the size of the withdrawal and your province of residence. Except for residents of Quebec, the rate of withholding is 10% on amounts up to and including $5,000, 20% on amounts over $5,000 up to and including $15,000 and 30% on amounts over $15,000. For Quebec residents, the combined rates are the rate of withholding is 21% on amounts up to and including $5,000, 26% on amounts over $5,000 up to and including $15,000 and 31% on amounts over $15,000. These amounts are remitted to the tax authorities, much like source deductions on a salary. The amounts do not constitute the final taxes to be paid. The actual income tax payable is calculated at the end of the year on your income tax return, and the withheld amounts are credited at that time. This may result in needing to make an additional payment, or it may result in a tax refund, depending on your overall situation.

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