Global News finance writer, Erica Alini recently asked Gennaro De Luca (CEO WEALTHplan & TAXplan Canada) to answer this question from a reader and we’d like to share it with you:


“Are withdrawals from a registered retirement savings plan (RRSP) taxed on your gross or net income? I’m trying to figure out how much we can take out without going to a higher tax bracket.”

A Money123 reader (the question was lightly edited)

The full amount of the RRSP withdrawal will be added to your income for the year it is withdrawn. It is added to your tax return on line 129 before computing total income. Although the financial institution is required to withhold tax on the withdrawal, the final tax bill will depend on your taxable income for the year. If the withdrawal, when added to your other taxable income sources, pushes you into a higher marginal tax rate, that portion of your taxable income will be taxed accordingly. As far as the CRA is concerned, the source of the taxable income is not relevant; the total taxable income figure is what matters. On another note, if you have other income, an RRSP withdrawal may be an expensive way to pay for something.  You may want to consider a line of credit or other savings. At the very least, consider withdrawing the funds at the beginning of the year to defer taxes for up to 16 months or better yet withdraw the funds in a low-income year to mitigate the tax liability.

– Gennaro De Luca, certified financial planner, WEALTHplan Canada


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