What is the tax treatment of payments from a RRIF once the annuitant turns 72?

Once the annuitant of a Registered Retirement Income Fund (RRIF) turns 72, all payments made from the RRIF are considered taxable income. This is due to the way that RRIFs are structured; they are designed to provide a stream of retirement income, and the government requires that these withdrawals be included in the annuitant’s income for tax purposes.

The rationale behind this taxation is based on the principle that funds placed within a RRIF were likely contributed with tax deferral benefits earlier in life. Consequently, when those funds are withdrawn as income, they are subject to standard income tax rates. Withdrawals from a RRIF are fully taxable, meaning that the complete amount received during the tax year is included in the taxpayer's income for that year, and tax is calculated based on their total taxable income.

This treatment aligns RRIFs with other retirement income sources, thereby ensuring a consistent tax approach for various forms of retirement income. It’s also essential for individuals to plan for the tax implications of these distributions, especially as they may push taxpayers into higher tax brackets depending on their overall income situation.