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As part of Canada’s COVID-19 Economic Response Plan, changes were made to provide support to seniors; this withdrawal reduction is one of those measures.

What is a Registered Retirement Income Fund (RRIF)?

RRIF is a registered arrangement that was made between an individual and a carrier (like a bank or insurance company), where the carrier makes payments to you after you transfer property to that carrier.

There is a that must be paid out to the individual each year, that is based on your age; the RRIF will be paid out for your life, and once it is started, no other amounts can be added to it.  You can have more than one RRIF.

Amounts paid out of a RRIF are taxable. You will receive a T4RIF slip with the basic amount withdrawn, excess amounts, and tax withheld.

What is the RRIF Withdrawal Reduction?

Part of the new measures put forth by the federal government includes a reduction in the minimum withdrawal amount to assist seniors currently receiving payments:

  • Minimum withdrawal for 2020 is reduced by 25%
  • The 25% reduction is only applicable for 2020

For example;

Janet’s RRIF minimum amount for 2020 before the reduction is $9,000 (which translates to $750 per month):

  • Her 2020 reduction would be= 25% x $9,000 = $2,250.
  • In other words, her minimum payment would be:

$9,000 – $2,250 (reduction amount) = $6,750 for 2020

  • Her new monthly payments are:

$6,750 / 12 = $562.50 per month.

  • However, this emergency relief was presented on April 2020. So Janet had received the original monthly payments for four months:

$750 x 4 = $3,000

  • After the reduction, her available minimum payments are:

$6,750 (new minimum amount) – $3,000 (already paid out) = $3,750

  • For the remaining 8 months her monthly payments are:

$3,750 / 8 = $468.75

Tax considerations:

You will claim your actual income from RRIF as reported in your T4RIF. The reduction might lower your total income to report; thus reducing your tax liability for 2020. This reduction will not affect your minimum payments in future years.

What are other measures taken to support seniors during the pandemic?

Non-resident seniors who receive Canadian old age security (OAS) payments may have to pay recovery tax on those payments. The recovery tax is an additional tax that is used to repay all or part of the OAS payments if your income is higher than the threshold. The threshold for 2019 was $77,580.

If you are a non-resident senior who receives OAS payments, you must submit an Old Age Security Return of Income (OASRI) so that the Canada Revenue Agency (CRA) can determine if you have to pay recovery tax and also to ensure that your OAS payments are not suspended.

OAS payments to non-resident seniors have been temporarily extended if your 2019 OASRI has not been assessed. You needed to submit your 2019 OASRI no later than Oct 1st, 2020.

Tax considerations:

When you submit your OASRI, CRA will reassess the extended payments according to your world income. This extension was only applicable for 2019 income and will not be extended for 2020 income.

Support For Working Seniors

Some seniors maintain a job while receiving retirement benefits to earn more income to sustain their living expenses. Seniors who experience a reduction in their income or lose their jobs because of COVID, have access to other emergency response benefits.

Canada Emergency Response Benefit (CERB) was available until Sep 27th, 2020 for working individuals who have earned a minimum of $5,000 in the 12 months prior to the application, or who have a maximum of $1,000 income in the 4 weeks period they are applying for. The program paid $2,000 taxable benefits every 4 weeks.

CERB was replaced on Sep 27th, 2020 with Canada Recovery Benefit (CRB) to provide individuals with an improved program to include those who experience at least a 50% loss in income every 2 weeks compared to last year’s income. The $1,000 maximum limit in CERB was lifted in this program. The program will last until Sep 2021. The program pays a taxable benefit of $900 every two weeks ($1,000 before tax).

If you are sick with COVID-19 and experienced at least a 50%  of income loss because you had to reduce your work hours, you can apply for the Canada Recovery Sickness benefit (CRSB). The program pays a taxable benefit of $500 every week ($450 after taxes) up to 2 weeks.

Some seniors have dependants living with them who are under the age of 12. If you look after your dependant because they are sick with COVID, or their school/daycare closed due to COVID, you can apply for the Canada Recovery Caregiver Benefit (CRCB). CRCB is also available if you had to isolate because you are taking care of another family member who is sick with COVID. You have to prove that you lost at least 50% of your income due to caring for someone else. Similar to CRSB, you can receive up to $500 per week ($450 after tax).

Tax considerations:

Benefits paid under the CERB, CRB, CRSB, and CRCB are taxable and cannot be combined for the same period. You will receive a T4A slip reporting the benefits received and any withheld taxes. Claim the amounts as income in your income tax and benefit return. Report on line 13000 the following benefits:

  • Box 197, Canada Emergency Response Benefit (CERB)
  • Box 202, Canada Recovery Benefit (CRB)
  • Box 203, Canada Recovery Sickness Benefit (CRSB)
  • Box 204, Canada Recovery Caregiving Benefit (CRCB)

Since CERB was paid out to individuals without withholding any taxes at source, you might notice a decrease in your refund or an increase in your amount owing to CRA. If you have applied for the other benefits, you can claim the 10% tax withheld at source as a refundable credit. Although this tax withheld will help reduce your tax liability, it doesn’t cover the first tax bracket federally and provincially combined. It is recommended to save some of your benefits paid in case you have to pay taxes to CRA.

Other support

Seniors who don’t have the means to pay their mortgager during COVID due to loss of income, can benefit from the Mortgage Payment Deferral program. You can defer your mortgage payments for up to 6 months (subject to renewal).

Quebec residents who work in essential services and earn $550 or less per week, can benefit from the Incentive Program to Retrain Essential Workers (IPREW). This service is not available to self-employed individuals. The province had increased the minimum wage limit to $13.01, so it might affect workers, who with the new raise, will earn more than $550 per week.

Tax considerations:

This program is not available for individuals who receive CERB, CESB, or temporary aid for workers through the federal programs. The raise is taxable so it might increase your taxable income and move you to a higher tax bracket.

For more details on income support and other benefits as part of the Federal Government’s Economic Response Plan for COVID-19, click here.

See also our COVID-19: Tax Info Centre, from our TurboTax Support team, answering many FAQs on this topic and more.