It is essential that members understand the tax consequences of withdrawing funds from an RRSP. Money is tax-sheltered while it is in an RRSP. When money is withdrawn from an RRSP, the amount is added to the member’s earned income for the year in which it was withdrawn.
When a member withdraws funds from an RRSP, Canada income tax or non-resident tax is withheld at the source. For members who are residents of Canada, income tax is deducted from the payment at the following rates:
10% — amount under $5,000.01
20% — amount over $5,000 but not over $15,000
30% — amount over $15,000
Note: It is CRA’s position that when known lump sum payments are split into multiple payments (e.g., $15,000 split 3 x $5,000), the withholding tax rate applicable to the total payment ($15,000) is used.
For members who are not residents of Canada, a non-resident tax is withheld. The rate of tax is set by treaties between Canada and other countries. Contact Financial Services, Central 1, or the Non-Resident Withholding Tax Division of CRA for tax rates.
For more information, see Section 6.8, Processing Withdrawals — Credit Union Administers the RRSPs.