Understanding the Basics - Servus Credit Union

Is Retirement Income Taxable?There is no tax consequence when transferring your RRSPfunds to a retirement income option. You only report, fortax purposes, the resulting payments as received. Sincethe income is spread over your retirement years, so is thetax liability. If you are 65 or over in the year, your retirementincome qualifies for the Pension Income Credit (see below)if you are not already qualified. In addition, if you and yourspouse elect to split your pension income, the overall taxliability may be reduced.Neither RRIF payments nor annuity payments qualify asearned income. Annuity payments cannot be transferredto an RRSP. RRIF payments in excess of the mandatoryminimum payment amount (see page 5) may be transferredDIRECTLY to an RRSP in your name until the end of thecalendar year you turn 71. This might enable you to reducethe value of a RRIF to deposit insurance limits.Withholding TaxIncome tax may be deducted from RRIF payments, but notannuity payments. The withholding tax is at the same ratesas with direct RRSP withdrawals (see page 22) based onthe total amount of all scheduled payments from the RRIFthat year that are in excess of the annual minimum amount.The withholding tax applies to the full amount of paymenttaken from your RRIF in the same calendar year the RRIFis opened. Thereafter, it only applies to the portion ofa RRIF payment in excess of the mandatory minimumpayment amount for the year.Pension Income CreditThe pension income credit is a federal income tax crediton qualified pension income (see below). The maximumpension income credit is $2,000. In 2013, the maximumpension income credit was $300 ($2,000 x 15% lowesttax bracket). Provincial income tax rules closely parallel thefederal calculation and will save you an additional amountof provincial tax. The total tax reduction depends on yourprovince of residence.Amounts that DO qualify for this creditAt any age:• periodic payments from a pension plan including VariableBenefits or superannuation plan including foreignpensions taxable in CanadaUNDERSTANDING ALL THE BASICS 27