Donating from a RRIF/RRSP: A smart strategy for tax, estate and philanthropic planning

For many higher net-worth Canadians, charitable giving isn’t simply an act of generosity—it’s part of a broader plan to create impact during their life and to leave a meaningful legacy. That focus is a hallmark of Canada Gives Foundation families. Yet one of the most effective tools for long-term, tax-efficient philanthropy is often underutilized: donating RRSP and RRIF assets into a Donor Advised Fund (DAF).

RRSPs and RRIFs represent a significant portion of wealth for many families. But unless they are left to a surviving spouse or dependent, these registered assets are taxed as income on a terminal tax return—and that often means taxation at the highest marginal rate. In some provinces, that can be more than 50 per cent. Without proactive planning, a substantial portion of a family’s hard-earned savings will end up in Canada Revenue Agency coffers. In addition, annual RIF withdrawal requirements after the age of 71 can push wealthier Canadians into a higher tax bracket, while potentially resulting in the clawback of government benefits such as Old Age Security.

At Canada Gives, we see donors turning this potential tax burden into an elegant philanthropic solution. And we’re finding that more families, advisors and accountants are beginning to recognize how powerful the RRSP/RRIF donation strategy can be.

Why funding a DAF from registered assets can make sense

RRSP/RRIF withdrawals are fully taxable as income. On death, the entire value of the account is added to a deceased individual’s final tax return (assuming they don’t have a surviving spouse or dependent who is their beneficiary). For many estates, this creates a very large tax liability.

Using these assets for charitable giving changes the picture dramatically. How?

• If RRSP/RRIF withdrawals are gifted to your Canada Gives DAF (or as we call it, a Foundation account), the charitable donation tax receipt offsets the tax on those withdrawals, sometimes fully eliminating the tax payable
• RRSP/RRIF gifts made to your Canada Gives DAF create long-term resources for granting
• Naming your Foundation account as the beneficiary of your registered assets allows those assets to bypass your estate, avoiding probate fees and reducing the likelihood of estate disputes or challenges

With the right strategy, dollars that would otherwise go to the CRA can instead support the causes that matter most to you and your family.

Why it’s often overlooked

If this strategy is so potentially beneficial, why isn’t it used more? Put simply, even highly skilled advisors often default to a familiar playbook: defer withdrawals as long as possible, take the minimum, re-invest annual income into a TFSA or non-registered account and focus on deferrals to minimize taxable income.

It’s a reasonable approach—but it’s not always the optimal one.

In recent months, we’ve met with several advisory teams to talk specifically about RRSP/RRIF giving strategies. For many, it’s a new conversation. Some prefer insurance-based planning (like using life insurance to replace the tax payable on a RRIF at death). Others focus on slowly ‘melting down’ an RRSP or RRIF over time. These are entirely valid tactics.

But for clients who are genuinely philanthropic, the RRIF donation strategy is often the most tax-efficient, simple and direct way to convert future taxes into charitable capital. Advisors can work with the Canada Gives Client Services team to automate the process on their client’s behalf, ensuring that RRSP/RRIF withdrawals are made once a year and automatically deposited into their Foundation account.

A real example: turning a $500,000 RRIF into purposeful giving

One recent example illustrates the benefits of this strategy.

A wealthy entrepreneur and Canada Gives donor client is transitioning ownership of his business to his sons, who are purchasing about $2 million to $3 million of the company’s assets each year. He also holds a $500,000 RRIF, and his annual minimum withdrawal is roughly 5 per cent—about $25,000—which he doesn’t need to fund his lifestyle expenses.

Without planning, he would pay tax at the highest marginal rate on the $25,000, year after year, simply because the rules require that minimum withdrawal.

Instead, he’s planning to donate his RRIF minimums each year into his Canada Gives Foundation account. The tax receipt would entirely or mostly offset the taxes payable. In effect, the donation costs him nothing. His RRIF stays largely intact in the early years, because withdrawals are offset by investment growth, before slowly being spent down.

Alternatively, he could have also withdrawn and donated the full $500,000 at once, seeding his DAF immediately, which is an ideal approach if $500,000 is the intended legacy gift.

Eliminating withholding tax with Form T1213

Most Canadians don’t realize RRIF and RRSP withdrawals automatically trigger withholding tax—up to 30 per cent on amounts of more than $20,000. If you withdraw $100,000 intending to donate it, you may only receive $70,000 to immediately donate to charity. The remaining $30,000 may (or may not) come back to you at tax time.

But the CRA provides a simple solution: Filing Form T1213 can eliminate withholding tax for donations made from RRSP/RRIF withdrawals.

Once CRA approves the request:

• Your withdrawals are made without withholding tax
• Your donation becomes a full-value gift
• Your cash flow becomes far simpler

The process is straightforward, and we recommend submitting it early in the calendar year to ensure the CRA processes the approval in time.

Choosing the right approach

Every gifting option has different tax, cash-flow and estate implications. Families should choose the approach that aligns with their long-term personal financial and philanthropic goals.

But one thing is clear: losing as much as half of an RRSP/RRIF to tax on death is avoidable. Without planning, the government decides where that money goes. With a Canada Gives Foundation account, you decide—proactively, intentionally and for the benefit of the causes you believe in.

The Canada Gives Team

To explore how a DAF might help you build a legacy that reflects your charitable values, consider opening a Foundation account with Canada Gives. Our team is here to help guide your charitable giving with flexibility and foresight. To learn more, contact a member of our team.