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Posts Tagged ‘CRA’

RRSP withholding taxAs the RRSP (Registered Retirement Savings Plan) contribution deadline approaches on March 1 in Canada, a regular reader of this site pointed out to me that you can divide your RRSP withdrawals into $5000 chunks to limit the withholding tax.

Taxtips.ca shows that the withholding tax brackets for lump sum withdrawals outside of Quebec are:

10% for withdrawals of $1 to $5000
20% for withdrawals of $5001 to $15,000
30% for withdrawals greater than $15,000

In Quebec, the tax is half those amounts.

Therefore, if you want to withdraw $20,000, as an example, you can do so with four separate withdrawals of $5000 each and only be liable for $2000 in immediate withholding tax instead of $4000, leaving you with $2000 to spend or invest before the April 30 tax filing deadline of the following year.

At that time you will be required to pay the remaining amount of tax owed on those withdrawals.

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From the Canada Revenue Agency’s website:

“The penalty is 5% of your 2008 balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months. If we charged a late-filing penalty on your return for 2005, 2006, or 2007 your late-filing penalty for 2008 will be 10% of your 2008 balance owing, plus 2% of your 2008 balance owing for each full month that your return is late, to a maximum of 20 months.”

Translation: If 2008 is the first time you’ve filed late in the past 3 years, then the late filing penalty will be 5 to 17%, otherwise it’ll be a hefty 10 to 50%.

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