RRIF, LIF and taxation

Any income from a Registered Retirement Income Fund (RRIF) or from a Life Income Fund (LIF) is taxable and must be added to your annual income.

In both cases, the law dictates the annual minimum withdrawal you are allowed to make. If the withdrawal is higher than the minimum, taxes are withheld at source on the exceeding amount. In Quebec, income taxes withheld (federal and provincial) will be 21%, 26% or 31%, depending on the withdrawal amount. In Ontario, federal taxes withheld will be 10%, 20% or 30%, depending on the withdrawal.

The withholding rate may be higher or lower than the actual tax rate that will apply to your income for the year. The adjustment will be made on your annual income tax return. To avoid a claim, you may choose to have additional taxes withheld on each withdrawal. There are also other measures that would minimize tax grabs.

If you wish to withdraw the minimum annual amount, request that the annual withdrawal limit be based on your spouse's age, if your spouse is younger. Then, your minimal withdrawal will be lower.