Retirement taxes explained: Withholding, clawbacks, and other surprises Sep 17th

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Retirement taxes explained: Withholding, clawbacks, and other surprises

– moneysense.ca

Many working-age Canadians wonder what the impact of retirement will be on their tax situation. As you save and build wealth, it is important to plan for the eventual tax treatment of your retirement assets and income as you approach that transition.

Taxation in Canada

When you are working, your employer calculates the payroll deductions to come off your paycheque based on Canada Revenue Agency (CRA) payroll tables. If you have no other sources of income, nor any tax deductions or tax credits, you should probably have no tax owing and no refund at year-end.

In retirement, it works differently. Since you may have different sources of income with different withholding tax rates—or lack of tax withheld—it can make for an uncertain income tax outcome. Often, retirees end up owing tax. It is important to plan for this.

That said, the overall tax rate that a taxpayer pays tends to be lower in retirement. So, despite owing tax, the overall level of tax per dollar of income is typically less than when you are working…

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