New RRIF Rules and $300 Cheques: Deciphering the Government’s COVID-19 Relief Measures For Seniors

new RRIF rules

The government's response for seniors has left many asking whether it goes far enough. Photo: iStock/Getty Images Plus

Prime Minister Justin Trudeau’s Liberal government recently announced its long-awaited relief plan to help seniors make it through the COVID-19 crisis.

These immediate measures were useful but, because they mainly apply to low-income Canadians, were rather limited in scope.

Under the government’s recently announced $2.5 billion senior relief plan, those who are 65 and over and currently qualify for the Old Age Security program (OAS) will get a $300 cheque in the upcoming weeks. And those who further qualify for the Guaranteed Income Supplement (GIS) will get a further $200. (These cheques will be mailed out automatically so you don’t have to apply online or by phone.)

All told, the “most vulnerable seniors” – as Trudeau often refers to lower-income older Canadians – will pocket a one-time tax-free payment of between $300 to $500 to help offset the extra costs they have incurred because of the pandemic.

CARP: Supports welcome but limited

Obviously, the extra cash will come in useful to the 6.7 million Canadians who will receive it to help cover the extra costs brought about by the pandemic, such as ordering grocery deliveries, taking taxis instead of public transportation and sundry expenses that have cropped up due to the lock-down.

But besides this assistance – and increased funding to the United Way and the New Horizons program to help reach isolated seniors – there’s been little direct support from the government for the millions of retirees whose portfolios have taken a severe beating during the spring’s stock market meltdown.

“The supports for seniors are welcome but do not directly address many of the concerns we’ve relayed to government from CARP members [a not-for profit advocacy group affiliated with ZoomerMedia] on retirement security and access to liquidity,” says CARP’s chief policy officer Marissa Lennox.

Lennox suggested that seniors were looking for something more substantial to protect their battered retirement portfolios. CARP made some specific recommendations that might help, including:

  • Increasing OAS and CPP
  • Eliminating withholding tax on RRSP withdrawals for the 2020 tax year
  • Waiving mandatory RRIF withdrawals

New RRIF withdrawal rules

On RRIF withdrawals, the government didn’t eliminate RRIF withdrawals, instead choosing to reduce them. Responding to concerns, they recently announced that for the 2020 tax year, the minimum RRIF withdrawal will be reduced by 25 per cent.

“The move gives flexibility to seniors that are experiencing market condition changes,” explains Susan Watkin, an accountant with Turbo Tax, an industry leader in tax preparation software.

She contends that many older Canadians don’t want to cash out of their RRIF, especially at a time when their portfolios may have taken a bruising. “Depending on the types of investments people are holding, they might not like the idea of having to take money out of the investment, especially if it’s not doing well right now,” she says.

At the end of the year you turn 71, you must convert assets in a Registered Retirement Saving Plan (RRSP) account into a Registered Retired Income Fund (RRIF) and begin drawing on its market value.

Under current rules, each year you are obligated by law to withdraw a minimum of the RRIF’s value. It’s known as the “RRIF factor” – the percentage of your prescribed annual rate of withdrawal that is determined by your age.

To explain, Watkin draws a fictional example of how the new rules might be beneficial to some older Canadians. Jane Smith is a 72-year-old retiree who has $100,000 in her RRIF account. Under normal rules, Smith would have to withdraw 5.4 per cent from her RRIF (the normal minimum based on her age). That means she would have to pay herself $5,400 from her RRIF account.

Under the new pandemic relief rules, however, the minimum withdrawal amount has been reduced by 25 per cent. This means that instead of withdrawing $5,400 this year, Smith has to take out only $4,050 – a difference of $1,350.

“I assume the goal of the new rules is to allow retirees to keep additional money in their investment a little longer in the hopes that they can take advantage of a market recovery,” says Watkin.

Contact your RRIF carrier

Her understanding is that if you’re already set up to get the automatic minimum amount withdrawn, the financial institutions that manage your RRIFs will adjust your withdrawal rates to reflect the new rules.

“However,” she notes, “I would highly recommend that people contact their carriers to verify if they are automatically going to change the amount. Don’t assume it’s going to be done for you.”

She also stresses that while the government has offered this measure for RRIF holders, you can still take more than the minimum. “You as the individual can determine the amount that you withdraw,” she says.

And she adds that for people who are used to doing their taxes with a live accountant might consider using one of the tax preparation software available, like Turbo Tax.

Older Canadians who are filing returns using the software but need tailored advice – whether it’s concerning the new RRIF rules or confusion over pension splitting – can take advantage of an enhanced feature on tax software, like Turbo Tax, that allows them to speak directly to a live tax expert, who can answer any questions and provide advice.