How to Withdraw Tax Free from your RRSP

How to withdraw tax free from your RRSP. Using a combination of the Dividend Tax Credit and the personal basic amount non-refundable credits you can avoid paying taxes on your RRSP withdrawals. The amount you can withdraw depends on the province you reside, other taxable income you have and the amount of dividend tax credit from your investments.

Written By Canadian Preferreds

On February 11, 2020

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Any withdrawals from your RRSP are considered income and are taxed at your highest tax bracket. You must declare the full amount as income for the year you withdrew the amount. Depending the amount of the withdrawal a different tax rate is applied and the amounts withheld vary by province as well.  This post at Wealthsimple has a detailed description by amount and province. The amounts withheld you can get back when filling your tax return for the year if you plan ahead and your patricular tax situation allow for it. I will show you How to withdraw tax free from your RRSP with some planning. 

Using a combination of the Dividend Tax Credit and the personal basic amount non-refundable credits you can avoid paying taxes on your RRSP withdrawals. The amount you can withdraw depends on the province you reside, other taxable income you have and the amount of dividend tax credit from your investments. 

Two items in the Canadian Tax law facilitate this option.

  1. The dividend tax credit. A non-refundable tax credit. Given to Canadian investors receiving dividends from preferred or common shares of Canadian corporations. If you have no other income reported for the year you can get around 50K in dividends tax free based on this credit. 
  2. The basic personal amount.  Another non-refundable tax credit Canadian residents can claim on their tax return to reduce the amount of taxes paid to the government.

At income level up to the “Basic personal amount”, both credits are working to reduce the tax burden. At income level above the “Basic personal amount”, only the the dividend tax credit is applied.

How to Withdraw Tax Free from your RRSP

Here is a sample 2019 Tax Return as prepared in turbo tax 2019 . I have kept the return to a bare minimum. The following assumptions are made for this return:

  1. Single Person
  2. Residing in Ontario
  3. First source of income is from “eligible dividends“.  The amount of dividends is $31,413
  4. Second source of income is from RRSP. Amount withdrawn $10,000
  5. No other income is included.

The sample T5 used is shown below.  The amount of dividends is $31,413 and the tax credit is $6,514.81.

24 – Actual Amount of dividends  $  31,431.02
25 – Taxable Amount of eligible dividends  $  43,374.81
26 – Dividend Tax Credit for eligible dividends  $    6,514.81

The sample T4RSP used is shown below.  The amount of RRSP withdrawal is $10,000.

16 – Annuity Payments  $  10,000.00

The Tax Return Summary sample

Detailed tax summary
Total income
Net employment earnings 0
Pension income 0
UCCB and EI benefits 0
Dividends, interest, and investment 43,375.81
Registered disability savings plan 0
Rental income 0
Taxable capital gains 0
Taxable support payments received 0
RRSP income 10,000.00
Other income 0
Net self-employment income 0
Social assistance income 0
Total income: 53,375.81
RPP, RRSP, PRPP, or pension splitting 0
Union or professional dues and UCCB repayment 0
Child and disability supports deductions 0
Moving expenses 0
Carrying charges, support, and other 0
Deduction for CPP/QPP/PPIP (self-empl.) 0
Employment expenses 0
Social benefits repayment 0
Net income: 53,375.81
Other deductions 0
Losses of other years 0
Capital gains deduction 0
Northern residents/additional ded. 0
Taxable income: 53,375.81
Federal non-refundable tax credits
Personal amounts (taxpayer and spouse) 12,069.00
CPP/QPP and EI 0
Other amounts 0
Allowable medical expenses 0
Amounts multiplied by 15%: 1,810.35
Charitable donation credit 0
Total federal non-refundable credits: 1,810.35
Refund or balance owing
Basic federal tax 0
Minimum tax 0
Less: Federal credits 0
Add: Tax on RESP income and WITB advance payments 0
CPP, EI, and Social benefits repayment 0
Provincial tax payable (excluding Québec) 600
Total payable: 600
Refundable tax credits
Tax deducted 0
CPP/QPP and EI overpayments 0
Climate action incentive 224
Other credits 0
Employee & partner GST/HST rebate 0
Instalments 0
Provincial tax credits 0
Total refundable tax credits: 224
Federal balance due: 376


As you can see from the above sample tax return, you can withdraw $ 10,000 from your RRSP tax free by using the offeseting tax dividend tax credits from your investments like preferred shares. The return shows taxes owed of $376 which is due to the OHIP premium in Ontario. The favourable taxation of dividends is a powerful reason to ensure you hold Canadian dividend paying stocks in your own portfolio. Canadian peferred shares offer yields over 5% depending on the type and quality of the preferred. Use our Rank and Compare views of the various preferred grouping to find the ones suitable to your needs.

Additional Information

You may find this YouTube video of interest – K4 Financial discusses the pros and cons of withdrawing from your RRSP at various stages.


  1. Richard Bos

    Good article. This is useful information

  2. Nissim Levy

    I am not clear if in the example above the dividends are coming from stocks inside the RRSP. If I withdraw from my RRSP the dividends I received for the year, are these taxed as eligible dividends or as regular income?

    • AAlex

      No, for this to work, the dividends must come from your investment account. You are using the tax dividend credit you receive on your investment account to reduce the taxes withheld for amounts withdrawn from your RRSP. (This happens when you file your tax return). For dividends you receive inside your RRSP you get no credit. This is why holding dividend paying stocks outside your RRSP is a better option.

  3. Ian Spanton

    For the example provided is the target to get total income around $53k? Would any combination of dividend income and RRSP withdrawal provide similar outcome? or is there something else that dictates the strategy?
    What strategy would be comparable for a married or common-law couple?
    Thanks, very interesting web site.

    • AAlex

      You’d have to run ‘What If’ scenarios in your tax software to determine what is the maximum RRSP you can withdraw based on the amount and type of dividends you have received.


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