Tax implications of making transfers between registered accounts + MORE Dec 21st

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I had a locked-in pension, which I converted to a life income fund (LIF). I also took advantage of the ability to unlock up to 50% of the LIF within 60 days and put $120,000 into an RRSP. I did not receive any funds—so I was shocked when I received a T4RIF for $120,000, which means I have to claim that as income. I also received an RRSP receipt for $120,000.

I didn’t receive any money, so I’m not sure why I’m being taxed now, as I will also be taxed when I start to withdraw the funds. Did the bank incorrectly issue the T4RIF?

—Suzanne

Transferring money from a LIRA into a LIF

Locked-in retirement accounts (LIRAs) come from pension plans—either pensions that are defined contribution (DC) or defined benefit (DB) pensions—that are transferred to you from your employer when you leave a job. In some provinces or territories, these accounts are referred to as locked-in registered retirement savings plans (RRSPs).

They’re locked in because they are intended to provide income throughout your retirement, so you are limited in how much you can withdraw each year from a resulting LIRA, subject to annual maximums based on your age…

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I have EPD stock in my RRSP for their dividend payments (about 7%). What a surprise I had—even when in an RRSP—I had to pay about 30% tax on these dividends. EPD is registered in Louisiana. 

—Wanda

How much is withholding tax on U.S. dividends?

I am going to provide a brief summary of U.S. withholding tax on investments, Wanda, before addressing Enterprise Products Partners (EPD) specifically.

First, U.S. stocks are generally subject to 30% withholding tax on dividends for non-residents. It does not matter where the firm is located that offers and holds the brokerage account. Foreign withholding tax is determined based on residency of the payor and the recipient.

Many countries, including Canada, have tax treaties with the U.S. to ensure a reduced rate of withholding tax. For qualifying Canadian residents, the tax can be reduced to 15%. In a registered retirement savings plan (RRSP), the tax may be reduced to 0%. 

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While inflation and taxes are both major scourges for retirees, there’s a silver lining in how the two interact. That’s because the federal government builds in a degree of inflation-indexing to tax brackets, retirement vehicle contribution room and major retirement programs like the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).

As CIBC Private Wealth’s Jamie Golombek recently wrote for the Financial Post, come 2024, all five federal income tax brackets are indexed to inflation using the rate of 4.7%. The new brackets are 15% for income between $0 to $55,867; 20.5% between $55,867 and $111,733; 26% between $111,733 and $173,205; 29% between $173,205 and $246,752, and 33% beyond that. Most provincial income tax brackets are also indexed to inflation. 

The basic personal amount (BPA) for 2024 is $15,705. That means most people will pay no tax on the first $15,705 of income.

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