Feds urged to allow tax-deferred RRSP withdrawals during coronavirus
A new report by the C.D. Howe Institute is urging the federal government to suspend taxes on registered retirement savings plan withdrawals during the coronavirus pandemic.
The report said the current financial assistance measures are an excellent start, but may still leave certain individuals and households with immediate cash-flow problems. Indeed, even for those to whom government assistance applies, there could be a delay in when they receive that assistance.
As such, C.D. Howe’s crisis working group is recommending that the government suspend both tax withholding and collection on RRSP withdrawals, up to a maximum amount, for a limited time.
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“Design attributes for this policy measure could draw on existing programs such as the home buyers’ plan and the lifelong learning plan,” said the report. “Tax-free RRSP withdrawals would have to be recontributed in the future over a maximum number of years (say, 10) with no loss of tax-deferred retirement savings room for participants.”
The report also noted the suspension could be implemented quickly through the financial institutions that typically withhold taxes on withdrawals. It added the government would receive its taxes, as intended, when the recontributed funds are eventually taken out at retirement, or account holders would simply have to pay tax on money they fail to recontribute.
“With interest rates so low, the cost to the government of what amounts to a delay in tax payments would be negligible,” said the report. “While . . . some RRSP holders might make unnecessary withdrawals and subject themselves to higher taxes, this measure could help some families and seniors needing liquidity during these difficult times.”
Read: A quarter of Canadians unaware of difference between RRSPs, TFSAs: survey