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Managing Taxes from Multiple Streams of Income




Hello everyone and welcome to the Retiring Canada Podcast.


In today’s episode, we’re diving into the important topic of managing taxes from multiple streams of income in retirement.


Specifically, we’ll discuss:

  • How different retirement income sources are taxed

  • Understanding the tax levers you can use to optimize income

  • The progressive tax system in Canada

  • When installment payments might be required

  • How to keep more money in your pocket month-to-month

  • A few action items for you to consider.


For those of you nearing retirement or recently retired, understanding the shift in how your retirement income is taxed is crucial.


While working, payroll taxes were automatically withheld from your paycheck and sent to CRA. Chances are, you even received a small refund each year. However, in retirement, the responsibility for proper tax planning falls on your shoulders. This can be tricky if you have multiple income sources, some with no tax withheld and others that could push you into a higher tax bracket.


As a result, many retirees find themselves owing tax when April comes, sometimes to the tune of a significant amount.


Let’s break this down by income sources and their respective tax treatments:


1. CPP and OAS

When you start receiving these pensions, you’re not automatically required to have taxes withheld. However, you can choose to request voluntary federal income tax deductions through your My Service Canada Account.


2. Defined Benefit Pension Plans

With pension income, tax is withheld at source, much like when you were employed. But the problem here is that the pension company often calculates tax withholding as if this is your only income source, which doesn’t account for other income like CPP, OAS, RRIF withdrawals, or investment income. This can result in insufficient withholding, leading to taxes owed at the end of the year.


3. RRSPs and RRIFs

When withdrawing funds from RRSPs or RRIFs, tax is applied to the total amount withdrawn. For withdrawals under $5,000, the withholding tax is 10%, between $5,000 and $15,000 it’s 20%, and over $15,000 it’s 30%.


For example, a retiree withdrawing $2,500 per month from their RRIF, totalling $30,000 for the year, will face a 30% withholding tax, meaning they’ll receive $1,750 per month and pay $9,000 in withholding tax annually. If this is their only income, they might be entitled to a refund, potentially as much as $6,000 come April, which may seem like a bonus—but remember, this is money you could have used or saved throughout the year.


4. RRIF Minimum Withdrawals

RRIF accounts have a required minimum withdrawal based on your age. The catch is that there’s no tax withholding on these minimums, which might give you some flexibility to manage your taxes. But remember, no withholding doesn’t mean tax-free—it’s still taxable when you file your return.


I could go deeper into these details, but let’s leave it at this for now: proper tax and cash flow planning is essential when structuring your retirement income.


Understanding the Canadian Tax System

Canada has a progressive tax system, meaning higher income levels are taxed at higher rates. For example, in Ontario, the first $12,000 of income is tax-free, the next $3,000 is taxed at 15%, and the next $36,000 is taxed at 20%. Additional income is taxed at higher rates, depending on the tax brackets.


This progressive system is why retirees sometimes owe taxes. For instance, if you have a $10,000 pension and $60,000 from other income, the tax on that pension income might be 30%. The more you earn, the more taxes you owe.


If you owe more than $3,000 in taxes for two consecutive years, CRA may require you to make quarterly tax installments.


How to Optimize Your Tax Payments

If you’re nearing retirement or already retired, here’s how to stay on top of your tax payments:

  1. Estimate your total taxable income from all sources.

  2. Use a tax estimator to calculate your total tax payable for the year.

  3. Assess your income sources. Are your RRIF withdrawals sufficient to cover your taxes?

  4. If you expect to owe more, consider adjusting the tax withholding on your CPP, OAS, or pension income.


Managing taxes effectively is crucial, and sometimes it’s just easier to make quarterly installments. But, if you want to minimize those payments and keep more in your pocket month-to-month, tax optimization is key.


At Fundamental Wealth, we specialize in retirement planning, making sure you’re optimizing every opportunity to maximize your nest egg—even if it means saving a few hundred dollars each month that would otherwise go to CRA.


We live in the tax weeds so you don’t have to.


Action Items

  1. If you’re preparing for retirement, start your tax planning now. Calculate your sources of income and plan for tax optimization.

  2. If you’re retired and struggling with quarterly installments or large tax bills, check out our FRP process to see if there’s a better way.



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And remember, when it comes to retirement, don’t take chances.


Make a plan so YOU can retire with confidence.


All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning. 


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