Étienne needs money for an unexpected repair. He requests a $6,000 ordinary RRSP withdrawal from his Ontario financial institution. It withholds $1,200 and deposits $4,800.
He initially reads that as a final 20% tax bill. It is a payment toward his annual income tax, not a guarantee of the final cost.
Separate gross income from the cash received
The gross withdrawal is $6,000. The $1,200 withheld does not reduce the amount of withdrawal income to $4,800. At filing time, the T4RSP reports the withdrawal and the tax deducted.
For an ordinary withdrawal by a Canadian resident outside Quebec, the standard withholding rates are 10% up to $5,000, 20% above $5,000 through $15,000, and 30% above $15,000. The relevant rate applies to the withdrawal amount, not as graduated slices like annual tax brackets. Quebec and non-resident rules differ.
Compare the withdrawal with the rest of the year
Étienne's final tax depends on his full annual income, deductions and credits. The withdrawal can also affect income-tested benefits. If the tax attributable to it exceeds the withholding, he may owe more when filing; if the overall payments are too high, the return reconciles that too.
He therefore estimates the gross amount needed and its annual tax effect before deciding how much to withdraw. Asking only how much cash the bank will deposit leaves part of the decision unanswered.
Do not assume the room comes back
An ordinary RRSP withdrawal generally does not restore contribution room. Putting the money back later requires available room and is a separate contribution.
Special programs such as the Home Buyers' Plan have their own eligibility and repayment rules. A withdrawal does not fall under them simply because the money is used for housing. Étienne keeps the bank confirmation and reviews the T4RSP when it arrives.
