CRA confirms that an RRSP or RRIF withdrawal has an immediate impact on tax on the cumulative excess
The 1% monthly tax under s. 204.2(2.1) is imposed on the “cumulative excess amount in respect of RRSPs” (the “cumulative excess”). A component of the cumulative excess is the individual’s “undeducted RRSP premiums,” which is reduced by the amount, if any, by which the total of all amounts received by the individual in the year and before the time out of or under, inter alia, an RRSP or RRIF and included in computing the individual’s income for the year exceeds the amount deducted under s. 60(l) in computing the individual’s income for the year.
CRA confirmed that this reduction occurs on a monthly basis, consistently with the monthly calculation of the tax. For example, if the annuitant made a withdrawal from the individual’s RRSP (or RRIF) in May (that was not recontributed so as to generate a s. 60(l) deduction), thereby eliminating the cumulative excess, no tax would be payable for May or thereafter, but the tax would still be payable for the prior months.
Neal Armstrong. Summary of APFF Financial Strategies and Instruments Roundtable, Q.9 under s. 204.2(1.2) - undeducted RRSP premiums – J.