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Retirement: RRIFs, LIFs and taxation

Any withdrawal 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're allowed to make. If you make a withdrawal that is higher than the minimum, taxes are withheld at source on the exceeding amount.

Income tax rates for amounts exceeding the minimum:

Amount exceeding the minimum

Rates for residents of provinces other than Quebec Rates for Quebec residents
Federal Quebec Total
$5,000 or less 10% 5% 16% 21%
$5,001 to $15,000 20% 10% 16% 26%
Over $15,000 30% 15% 16% 31%

The withholding rate may be higher or lower than the actual tax rate that applies to your income for the year. The adjustment will be made on your annual income tax return. If the amount withheld is lower than the income tax due, you can ask your Desjardins advisor to have additional taxes withheld on each withdrawal.

If the annual minimum withdrawal exceeds your needs

  • If you and your spouse want to withdraw the lowest amount possible, you can request that the minimum annual withdrawal amount be based on your spouse's age if he or she is younger. The annual minimum amount will therefore be lower.
  • If you have to make an annual minimum withdrawal from your RRIF but don't need the money to live on, you can invest it in a Tax-Free Savings Account (TFSA) on which all investment income is tax-free.

2 tax-saving strategies

Strategy no. 1: Claim the pension income tax credit

Converting a portion or all of your RRSP, locked-in RRSP or LIRA in order to claim the pension income tax credit, if you're not getting it already, may be to your benefit in certain circumstances.

Consider this strategy, especially if your personal income tax level is below the amounts listed below:

Ontario residents Quebec residents
Federal Provincial Federal Provincial
$40,726 $36,848 $40,726 $38,385

Federal tax: As of age 65, you can get a tax credit on the first $2,000 withdrawn annually from an RIFF or LIF, regardless of your income.

In Quebec: You can get a tax credit on the first $2,000 withdrawn annually at any age, but this reduces when family income exceeds $30,345. The 15% reduction also applies to all family income tax credits:

  • the retirement income credit of $2,000 per person
  • the credit of $2,250 for persons 65 and over
  • the credit of $1,225 for individuals living alone

In Ontario: As of age 65, you can get a tax credit of the first $1,228 withdrawn annually from an RRIF or LIF, regardless of your income.

Note: Financial information provided is based on government tax requirements for the year 2009.

Strategy no. 2: Ensure the contributing spouse pays no taxes when a spousal RRSP is converted to an RRIF

If, during the current or 2 preceding years, your partner made a spousal contribution to your RRSP before it was converted into an RRIF, he or she will be taxed on any portion of the income drawn from the RRIF exceeding the annual minimum. To avoid this, withdraw only the annual minimum for at least the first 3 years. As soon as 3 years pass with no contributions to the spousal RRSP, only the annuitant is taxed on RRIF withdrawals, regardless of the amount.

Other strategies may be able to help you reduce the amount of tax due on payouts. Speak to your Desjardins advisor.

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