Can I use capital losses to offset RPP withdrawal

[jrocha83]

I recently withdrew from my RPP and was hit with a 30% withholding tax. I understand that this withdrawal will also be subject to taxable income. So I was hoping to get some help with 2 questions.

1) Will the taxed income be for the full amount of the withdrawn RPP before the withholding tax was applied or the amount AFTER the federal tax hit.

2) If I'm carrying a capital loss from the past couple of years to this tax year. Will I be able to utilize that loss to possibly offset the RPP income?

Any help or guidance would be greatly apprecaited.

Regards,

JR

[TurboTax-Duncan]

Hi, thank you for using Intuit TurboTax Community

The gross amount of the withdrawal will be included as income, you will receive a tax slip from the institution where the funds were invested. The tax withholding is not the final tax liability as you suggested but will be included in total tax withheld to offset federal and provincial tax owing.

Capital losses can only be used to offset capital gains, so, they cannot be used to offset other types of income.

Hope this helps 

[jrocha83]

Thank you very much for your response.

As a follow up. If my appropriate income tax rate is lower than the withholding tax rate of 30% would this then be reflected in a potential tax return?

Appreciate your patience with my questions. This is fairly new to me.

Cheers,

JR

[TurboTax-Duncan]

Hi, thank you for using Intuit TurboTax Community

The withholding tax rate does not necessarily reflect the actual final tax liability on the T1. If your final tax liability on the T1 is less than your tax withheld, a refund would result. Whether or not the 30% tax withheld was greater then the final average tax rate can only be determined by completing the tax return for the applicable year.

Hope this helps

[jrocha83]

Thank you so much. This is very helpful!

[TSowell_Fan]

Don't know if you'll see this message given the lengthy period since you posted your reply. Just in case, though, here's my follow-up query:

It appears that TT21 (Standard Edition) allows the user to apply any amount of accumulated capital losses up to the maximum available. ie Contrary to what I believe the tax code allows, TT21 does not prevent the user from entering a loss amount greater than the capital gains being reported for 2021 - thereby offsetting other income such as employment of RRIF income, for example.

Using this feature, I was able to drive my tax owing to $0 by increasing the past losses amount applied. If my understanding is correct, it strikes me that this is a design flaw in TT21 - one that I believe has existed in previous versions for some time.

I'm hoping you see this and respond. And, assuming I'm not off-base, I hope you will cause a correction to TT's software.