A withdrawal from your RRSP will count as taxable income for the year it is withdrawn, except under two circumstances - the Home Buyers' Plan or the Lifelong Learning Plan. It will also be subject to a withholding tax that gets deducted your requested withdrawal amount and paid to the government. This is to cover a portion of the taxes you'd normally owe. Come around tax season, if the withholding tax was greater than what you owed in taxes, you'll get a tax refund. If the withholding tax was less than what you owed in taxes, you'll have to pay additional taxes.
Withholding Tax rates
|If you withdraw:||
Withholding tax rate (excluding Quebec):
||Withholding tax rate (Quebec residents):|
|Up to $5,000||10%||21%|
|Between $5,001 and $15,000||20%||26%|
|More than $15,001||30%||31%|
A simplified example:
John, from Ontario, withdraws $10,000 out of his RRSP for emergency reasons. Due to a withholding tax of 20% ($2,000 of “pre-paid” taxes in a way), John will only receive $8,000 in his bank account when he makes the withdrawal.