Canada Announces Relief for Retirees Drawing Down RRIFs

The Canadian federal government announced on March 18, 2020 that it would allow seniors and investment clients currently drawing down their Registered Retirement Investment Funds (RRIF) some relief. All required withdrawals will be reduced by 25%. This is an important point for seniors that withdraw more than needed according to the government’s schedule and as a consequence, face income tax on the excess withdrawals and in addition, would be forced to sell investments in a reduced valued market.

The government’s announcement will provide a means of relief to clients currently withdrawing from their RRIF accounts. Not only will seniors not be forced to sell investments when the investment market is lower, it will allow seniors the choice of when they may sell their investments, and make choices to better protect their investment and retirement portfolios.

According to the current formula, at age 71 the minimum required withdrawal rate is 5.28% and increases annually. Under the new measures introduced for this period, that rate drops 25% to 3.96%.

It is not finalized but is expected that all excess withdrawals can be recontributed back to individual RRIF accounts so as to claim an income tax deduction, which may further assist with income tax payable. Reducing the minimum withdrawal amount by 25% also comes with a possible further benefit for the event of market rebound since the retirement investment portfolio value would in that case, rise. Withdrawals from an RRIF account are fully taxable under our income tax regime. This means that income of dividends, capital gains, and interest will accumulate tax sheltered within the account.

The various investment providers are currently working on the details of process and handling of these changes including the possible repayment to RRIF accounts. They are in turn waiting for updates from Canada Revenue Agency (CRA).