COVID-19 Changes to the RRIF/LIF Minimum Payment

On March 18, 2020, a set of economic measures were announced as part of the Government of Canada’s Covid-19 Economic Response Plan.  That statement proposed changes to the calculation of the required minimum withdrawal for registered retirement income funds (RRIF/LIF) by 25% for 2020.

 

What You Need to Know

  • This change is optional for annuitants, not mandatory.
  • If the annuitant chooses to reduce their payment to the new minimum (e.g.: by 25%), the change will be applicable for the full 2020 calendar year.
  • Annuitants cannot request a variation of the new minimum payment (ie.10% or 15%). It must be reduced by 25%.
  • Annuitants whose minimum payment for 2020 has already exceeded the new minimum amount are not permitted to re- contribute to their RRIF/LIF and cannot cancel or reduce a withdrawal that had been previously made.
  • Annuitants who have chosen an ‘elected’ amount greater than the old minimum do not have an advantage in applying the new minimum.
  • These changes apply only for 2020. Regular RRIF withdrawal factors will apply in 2021.

 

Qualification Requirements

There are three possible scenarios whereby an annuitant would qualify for the new minimum.

Scenario 1: The annuitant has not yet made a withdrawal and wishes to reduce the minimum withdrawal established on January 1, 2020 by 25%.

Scenario 2: The annuitant has already taken payments (scheduled payments: monthly, quarterly, etc.) without exceeding the new minimum.

Scenario 3: The annuitant received less than the ‘old’ minimum amount but more than the new minimum amount.

 

Withholding at Source

Tax must be withheld from amounts exceeding the RRIF minimum amount each year.  The usual rule is that when you receive annual RRIF payments in excess of the “minimum amount”, the custodian must withhold a percentage at source and remit this to the government.  Note that these withholdings of taxes may be lower than what you may end up owing when you file your personal tax return depending on your marginal tax rates.

Ultimately, if your RRIF withdrawal in 2020 is more than the new lowered minimum RRIF, but less than the original minimum RRIF, the custodian will not withhold taxes as the government stated that the regular minimum amounts are to be used.

 

Spousal / Common-Law Partner Plans

Under the attribution rules of the Income Tax Act, if you withdraw an amount from your spousal RRSP/RRIF in excess of the minimum RRIF withdrawal, attribution will apply to your spouse who contributed to the spousal RRSP/RRIF on your behalf in the current or previous two calendar years. When this happens, the amount you withdraw from your spousal RRSP/RRIF will be attributed back and included in your spouse’s income (the one who contributed).  For 2020, the regular RRIF factor (the original minimum, not the new lower minimum) will be used when determining the amount that is attributed.

 

Non-Resident Accounts

This measure is also available to non-residents.  For further information please consult the press release Minimum RRIF Withdrawals (Appendix to the Summary of Canada’s COVID-19 Economic Response Plan): https://www.canada.ca/en/department-finance/economic-response-plan.html

The following includes the original and new minimums, along with the normal withholding rates for your reference.

 

Regular & New 2020 Lower RRIF Factors

RRIF/LIF Tax Withholding Rates

RRIF/LIF WithdrawlRate (%)
Below Minimum0%
$0 – $5,00010%
$5,000 – $15,00020%
More than $15,00030%

Note: Tax withheld may be lower than what you owe depending on your marginal tax rates.  For Quebec withholdings tax rates, please contact us.

 

For more information, please refer to the following link:

Economic Statement – New Measure for Annuitants of Registered Retirement Income Funds

If you have any questions on the above, or your overall financial and estate plan, please contact me.

Fabien Ouellette
CMT, CFTe, CIM, FCSI
Portfolio Manager
Financial & Estate Planning Advisor