Tax implications of early RRSP withdrawals
- RRSPs are designed to help Canadians save for retirement and provide a tax shelter for the funds. You lose the sheltering benefits when you make a withdrawal. - When you request a withdrawal from your RRSP, the financial institution is required to withhold a certain percentage of tax based on the amount of the withdrawal: - 10 per cent on amounts up to and including $5,000 - 20 per cent on amounts over $5,000 up to and including $15,000 - 30 per cent on amounts over $15,000 - The amount withheld at source is not usually sufficient to cover your final tax liability. - The money withdrawn from an RRSP is considered income in the tax year it was received. You will have to add it to the other income you earned during the year on your tax return. - Once you withdraw money from your RRSP, the contribution room is lost. You cannot replace the funds at a later date. - The Home Buyers Plan (HBP) and Lifelong Learning Program (LLP) do allow you to withdraw funds from your RRSP without penalty as long as they are paid back within the appropriate time frames. If the funds are not repaid, they will be considered income.
A local H&R Block spokesperson can discuss the tax implications of early RRSP withdrawals
About H&R Block Canada ----------------------
Follow the Tax Advisory at H&R Block at www.hrbtaxtalk.ca or @HRBTaxTalk on Twitter.For further information: Tina Quelch, Calador Communications, (416) 925-6034, firstname.lastname@example.org