RRIF proposal’s fiscal impact ‘relatively modest,’ but measure may no longer be warranted

Given the stock market recovery and the government’s weakening fiscal position, the Liberals’ election pledge to reduce the mandatory minimum RRIF withdrawal by 25% for one year may no longer be warranted. Still, tax advisors suggest that retirees who don’t need their RRIF income can continue to wait to withdraw this year’s minimum until there’s more certainty.

The RRIF proposal, as described in the Liberal Party of Canada’s election platform, aimed to provide retirees with “flexibility to avoid liquidating their retirement savings in a down market,” helping them preserve capital during a period of heightened uncertainty. The proposal was announced in early April, as stock markets dropped in response to U.S. trade tariffs. But markets have rebounded, and the year-to-date return of the S&P/TSX composite index is nearly 10%.

Government spending is also a concern. A report on Thursday from the C.D. Howe Institute projected a deteriorating fiscal outlook. Adjusting for factors such as lost revenue from the dropped proposed increase to the capital gains inclusion rate and the rescinded digital services tax, along with spending measures from the election platform plus new defence spending, the report estimates a federal budget deficit of $92 billion in 2025–26 and an average annual deficit of $78 billion over the four years 2025–29. The PBO says the federal government’s deficit for the last fiscal year (2024–25) was likely $46 billion.

In response to a question about the RRIF proposal, a Finance official said in an email on Thursday that the government has a mandate “to bring down costs for Canadians.” The email referenced the government’s cut to the lowest federal income tax rate to 14% from 15%, and the elimination or reduction of GST from new home sales for first-time homebuyers.

The tax cut was effective July 1, and the rate is 14.5% for 2025 to reflect implementation halfway through the year. The measure will cost more than $28 billion over five years, the Parliamentary Budget Officer says.

“The government will have more to say on additional measures to make life more affordable for Canadians in due course,” the Finance official said.

“I don’t know what the government will do,” said Brian Ernewein, senior advisor, national tax, with KPMG LLP in Ottawa, in reference to the RRIF proposal. “They’ve made the commitment, but whether or not the case on which that commitment is based still exists is debatable.”

Volatile markets could return, restoring the case for the proposed measure, he said, although he added that seniors, with their shorter time horizons, “shouldn’t be all in on the stock market.”

Ernewein also noted that the RRIF proposal didn’t come with caveats, and as such, the government will “have to decide whether or not the reaction to not doing it would be a problem” politically. Seniors are a block of voters that remain important to a minority government, said Fred O’Riordan, EY Canada’s national leader of tax policy in Ottawa.

O’Riordan also described the RRIF proposal as “a relatively modest fiscal hit.” The Liberals’ election platform said the cost was $600 million for 2025–26. If the Liberals are “trying to satisfy the expectations of seniors, it’s easier to do it with the less expensive tax cost [of the RRIF proposal] than the [Guaranteed Income Supplement] reform,” O’Riordan said. For low-income seniors, the Liberals promised to increase the guaranteed income supplement by 5% for one year, at a cost of $1.12 billion.

On the other hand, “there are lots of reasons to speculate why [the RRIF proposal] might be dropped,” O’Riordan said, referring to the fiscal outlook as well as economic uncertainty related to trade tariffs. “There are a lot of clouds on the horizon … and that has got to temper the government’s appetite to pursue the platform elements that involved … tax relief and fiscal cost.” The government has to “shore up their revenues on the one hand [and] put downward pressure on their expenditures on the other,” he said.

Waiting still advised for some retirees

For retirees, “my advice is … if you don’t need the income, wait,” John Natale, head of tax, retirement and estate planning services with Manulife Investment Management in Oakville, Ont., said. “Let’s wait for the details,” if the measure is in the fall budget, for example.

Wilmot George, managing director of tax and estate planning with Canada Life in Toronto, said many retirees who don’t need the cash flow from their RRIF minimums have set up their accounts to receive payment later in the year, and “they have some time to continue to wait.”

By waiting, “you preserve maximum flexibility,” Natale said. For example, if a retiree withdraws their mandatory RRIF minimum and the proposal is subsequently implemented, the government may not allow taxpayers to recontribute the excess amount withdrawn.

RRIF minimums were temporarily reduced by 25% in 2020, the year of the pandemic-induced stock market decline, and also in 2008 in response to the global financial crisis. In the latter case, the government allowed taxpayers who had withdrawn more than the reduced minimum to recontribute the excess amount to their RRIFs, George noted. Recontributions weren’t allowed for 2020.

George suggested that clients “pay close attention to what happens in Ottawa” when it comes to budgets and legislation, generally: “It will impact their planning going forward.”

If the proposal is included in the fall budget, the government will have to implement legislation “well before the year-end” for the measure to be of practical use, Ernewein said. “Neither banks nor RRIF holders [will] want to make less than minimum withdrawals … unless [the] law is changed to implement the lower amount,” he said.

Regardless of the RRIF proposal, clients require a holistic view when considering RRIF withdrawals, Natale said. “There are many other factors that can come into play,” such as a client’s tax bracket now versus in future years, spousal RRIF attribution rules and pension income splitting.