In 2025, retirees must understand minimum withdrawal amounts, taxation, withholding, and optional strategies. 

This article lays out what the CRA requires and what flexibility you have under current rules.

When must you start RRIF withdrawals in 2025?

Once you establish a RRIF, you begin making withdrawals the following calendar year. 

You are not required to take anything in the year you convert your RRSP to a RRIF.

For example, if you convert your RRSP to a RRIF in 2024, your first required withdrawals must start in 2025.

What is the minimum withdrawal amount for a RRIF in 2025?

You must withdraw at least a minimum amount each year. The calculation:

1. Start with the fair market value (FMV) of your RRIF on January 1 (or the beginning of the year).
2. Multiply that value by a prescribed factor (a percentage) based on your age (or, if you previously elected, your spouse or common-law partner’s age).
3. The result is your minimum required withdrawal for that year.

CRA provides a chart of prescribed factors by age. For example, at age 65, the factor is 0.0400 (i.e., 4.00%).

If you choose to base withdrawal factors on your spouse’s age (if younger), that election must be made before your first withdrawal and cannot be changed.

Are there maximum limits or restrictions on RRIF withdrawals?

There is no maximum withdrawal limit (other than the value in your RRIF). You can withdraw more than the minimum if desired.

However, withdrawals above the minimum may have withholding tax applied at the time of withdrawal (depending on your province and the amount withdrawn).

If you only withdraw the minimum required amount, your financial institution generally does not withhold tax up front.

How is withholding tax applied to excess RRIF withdrawals?

When you withdraw more than the minimum, the excess portion is subject to withholding tax.

For most provinces (except Québec), the federal withholding rates are approximately:

• 10% on amounts up to $5,000
• 20% on amounts between $5,001 and $15,000
• 30% on amounts above $15,000

In Québec, provincial withholding applies too, and the thresholds differ.

Note: Withholding tax is a prepayment. The actual tax you owe depends on your total income and marginal tax rate when you file your return.

How withdrawals are taxed and reported

All amounts you withdraw (minimum or more) from your RRIF are fully taxable income in the year you receive them.

You will get a T4RIF slip from your RRIF carrier reporting the amounts withdrawn. That slip is used when you file your tax return.

If you withdraw more than the minimum, some of that excess may be taxed in the hands of the contributor under the attribution rules (especially relevant for a spousal RRIF), if certain conditions are met.

From age 65 onward, RRIF withdrawals may qualify as “eligible pension income,” enabling you to use the pension income tax credit (in many jurisdictions) up to $2,000.

Can you do non-cash withdrawals?

Yes. Your RRIF may allow in-kind withdrawals, meaning you transfer investments directly rather than selling them. The institution must agree.

This is useful if you don’t want to incur transaction fees or sell during unfavorable market conditions.

Recent proposals and possible changes in 2025

In 2025, the federal Liberal Party proposed a temporary 25% reduction in required RRIF minimum withdrawals for one year, to ease pressure on retirees during market volatility.

However, as of now, that reduction has not been implemented into law. Retirees should monitor government announcements for formal changes.

Strategies retirees should consider under current rules

1. Delay withdrawals if market performance is weak, provided your financial institution allows it, but ensure you at least meet the minimum.
2. Use your spouse’s age (if younger) to lower required minimums — election must be made before first withdrawal.
3. Avoid withdrawing too much above the minimum unless needed, to minimize withholding tax and preserve tax efficiency.
4. Use in-kind withdrawals when practical to avoid forced selling in bad markets.

These rates directly affect individuals, families, and businesses across Canada, especially those dealing with tax debt, refunds, or income-splitting strategies. 

What Are CRA Interest Rates?

CRA interest rates are official figures used to calculate interest on overdue taxes, overpayments, and certain types of loans.

The rates are updated every quarter based on the average yield of three-month Treasury bills.

They apply in five main ways:

1. Interest on overdue taxes, CPP, and EI contributions: Charged when individuals or businesses owe money to the CRA.
2. Interest on overpayments (refunds): Paid by the CRA when you’ve paid more tax than required.
3. Prescribed interest rate: Used for family or inter-company loans under the Income Tax Act. It determines how much interest must be charged to avoid attribution of income.
4. Corporate indebtedness rate: Used for certain international and corporate loan arrangements.
5. Refund interest rates for corporations and individuals: Differ based on taxpayer type, with non-corporate taxpayers generally receiving higher rates.

CRA Interest Rates by Quarter in 2025

The CRA updates these rates every three months. 

Below are the official and reported rates for each quarter of 2025, according to the Government of Canada and major financial publications such as Investment Executive and KRP LLP.

The prescribed rate dropped from 4% to 3% starting July 1, 2025, reflecting the Bank of Canada’s gradual interest rate easing. 

While this decrease benefits taxpayers who use prescribed rate loans, the 7% overdue tax interest still remains higher than pre-2022 levels.

Why These Changes Matter

1. Impact on Tax Debt and Late Payments

If you owe taxes, the CRA applies the overdue interest rate daily, compounded every quarter. The small drop from 8% to 7% in Q3 means slightly lower interest costs on unpaid balances, but it’s still among the highest rates in recent years. Paying off balances before quarter-end can prevent compounding at new, higher rates.

2. Benefits for Refunds and Overpayments

When you overpay your taxes, the CRA compensates you using the applicable refund rate—6% for non-corporate taxpayers earlier in 2025, then 5% in Q3. This ensures you earn some interest on money the CRA holds, though the rate is always lower than what the CRA charges on overdue amounts.

3. Tax Planning with Prescribed Rate Loans

The prescribed rate is crucial for tax-saving strategies like spousal loans or family income splitting. For example, a higher-income spouse can lend money to a lower-income spouse at the CRA’s prescribed rate. The investment income generated from that loan is then taxed in the lower-income spouse’s hands instead of being attributed back to the lender.

The drop to 3% in July 2025 creates an opportunity to establish new prescribed rate loans at a lower interest rate. Once locked in, that 3% rate remains fixed for the lifetime of the loan—even if future rates rise.

4. Business and Corporate Implications

For corporations, the corporate indebtedness rate (about 6.6% in late 2025) affects loans between related companies or subsidiaries. 

Businesses also use these rates to calculate interest on payroll remittances, GST/HST payments, and tax instalments.

How CRA Calculates These Rates

According to the Income Tax Regulations, CRA determines interest rates quarterly using the average yield of three-month Treasury bills for the first month of the previous quarter. 

The rates are then rounded up to the nearest whole percentage. 

This approach ensures CRA’s rates align with general market trends, though they tend to remain slightly higher to discourage tax deferral.

When Are These Rates Updated?

The CRA publishes updated interest rates about two weeks before the start of each quarter:

• January 1
• April 1
• July 1
• October 1

Each announcement appears on the official Government of Canada website under “Prescribed interest rates,” ensuring transparency and public access.

How to Use This Information

Taxpayers, financial advisors, and business owners can use CRA’s interest rate announcements to:

• Estimate costs for overdue payments or late filings
• Maximize tax refunds and plan for corporate overpayments
• Establish prescribed rate loans before rates rise
• Manage inter-company and family financial planning

Knowing when the rates change helps you make timely financial decisions, especially if you owe taxes or want to benefit from family income-splitting strategies.

It is used in several tax rules—especially those involving loans between related parties, calculating taxable benefits from low-interest or interest-free loans, and determining interest on overdue or overpaid tax balances. 

Changes in the prescribed rate can create planning opportunities or tax risks. 

In 2025, the prescribed rate has dropped, and that affects many taxpayers. 

What is the CRA prescribed rate in 2025?

The CRA publishes prescribed interest rates quarterly to govern how much interest must be charged for certain tax-related situations.

For 2025, the prescribed rate history is as follows:

1. Q1 (Jan-Mar 2025): 4 % for many purposes (e.g., loans between family members)
2. Q2 (Apr-Jun 2025): stays at 4%
3. Q3 (Jul-Sep 2025): drops to 3%
4. Q4 (Oct-Dec 2025): remains at 3%

These rates apply to overpayments, underpayments, and certain loan-related tax rules.

What types of tax rules use the prescribed rate?

The prescribed rate is involved in several tax contexts, including:

1. Loans between related persons or to a family trust: if you lend money to a spouse, common-law partner, or other related person at a rate below the prescribed rate, the “income attribution” rules may apply. To avoid those rules, the loan must carry interest at least equal to the prescribed rate for that quarter.
2. Taxable benefits on interest-free or low-interest employee or shareholder loans: an employer providing a low-interest or interest-free loan to an employee must compute a taxable benefit using the prescribed rate.
3. Interest on amounts owed to CRA or amounts CRA owes you: under the Income Tax Act, overdue taxes, CPP contributions, and EI premiums are charged interest, and overpayments may earn interest, all based on prescribed rates.

Because the prescribed rate can change each quarter, the rate in effect when the loan is made or when the debt arises often controls the calculation.

Why did the prescribed rate drop in 2025?

The prescribed rate is tied to market rates, particularly government 90- or 3-month Treasury bill yields. 

CRA uses a formula (average of certain Treasury bill rates, rounded up) to determine the rate each quarter.

In 2025, the overall interest environment cooled. As a result, CRA lowered the prescribed rate from 4 % to 3 % in Q3, and it stayed at that level for Q4.

This drop makes some tax planning opportunities more attractive, particularly in income splitting via loans.

How does a lower prescribed rate affect you?

Here are the main impacts:

1. Better income-splitting potential
   If you lend money to a lower-income spouse or family member at the prescribed rate, the investment returns above that rate may be taxed in their hands instead of yours—so the lower the prescribed rate, the better the margin.
2. Lower taxable benefits from loans
   For employee or shareholder loans, the difference between what the employee pays and what the interest would be at the prescribed rate is a taxable benefit. A lower rate reduces that benefit.
3. Lock-in of the rate for a loan
   The rate in effect when you give the loan often becomes the benchmark for the life of that loan—even if prescribed rates later rise.
4. Interest on tax balances
   Overdue tax amounts continue to carry interest (which is usually the prescribed rate + a premium), and overpaid amounts may attract interest payments to the taxpayer. Changes in the prescribed rate influence those amounts.

What you should watch or do now

1. If you are considering making a prescribed rate loan, doing it in Q3 or Q4 2025 (when the rate is 3 %) may maximize the benefit.
2. Ensure interest on that loan is paid annually (often by January 30) to maintain tax compliance.
3. If you have existing loans made in earlier quarters, the rate locked in then may carry forward. Be careful about restructuring unless tax effects are clear.
4. Watch future quarterly announcements of prescribed rates—if rates start rising again, opportunities narrow.
5. For employee or shareholder loans, make sure you compute benefits correctly using the prescribed rate in effect at the time of the loan or the rules for home purchase loans. 

In 2025, the federal brackets have shifted and a key rate cut is scheduled mid-year. 

This article walks through how the 2025 CRA federal tax brackets work, the rate change, how taxes are calculated, and how provincial rates factor in.

What are the 2025 federal income tax brackets and rates?

According to the Canada Revenue Agency, for 2025 the federal tax brackets are:

1. 14.5 % on taxable income up to $57,375 (effective rate for full year due to mid-year cut)
2. 20.5 % on income over $57,375 up to $114,750
3. 26.0 % on income over $114,750 up to $177,882
4. 29.0 % on income over $177,882 up to $253,414
5. 33.0 % on income over $253,414

Note: The lowest tax rate will be reduced from 15 % to 14 % on July 1, 2025. Because the cut happens mid-year, the effective full-year rate for the first bracket is 14.5 %.

Why the bracket change and how it’s implemented

In May 2025, the federal government announced a “middle-class tax cut”, lowering the lowest marginal tax rate by 1 %, starting July 1.

For the first half of 2025, taxpayers will still use the 15 % rate for that bracket. 

From July onward, the 14 % rate applies to that same bracket. The blended effective rate for the year is 14.5 %.

CRA’s payroll tables reflect this change: for salaries paid from July 1 to December 31, tax withholding for income in the first bracket will use 14 %.

How marginal tax brackets work in practice

Marginal tax means each portion of your income is taxed at a specific rate:

1. Income in the first bracket is taxed at the lowest rate (14.5 % in 2025).
2. Income above that threshold up to the next bracket is taxed at the next rate (20.5 %), and so on.
3. You don’t pay a single flat rate on all your income, but a combination of these rates.

For example, if your taxable income is $120,000:

• First $57,375 taxed at 14.5 %
• Next $57,375 taxed at 20.5 %
• Remaining amount (from $114,750 to $120,000) taxed at 26.0 %

This progressive structure ensures that higher earnings are taxed more heavily only on the portion above each threshold.

Interaction with provincial/territorial tax brackets

On top of the federal tax, each province or territory in Canada applies its own tax rates and brackets. 

Your total marginal tax rate on a dollar of income is the sum of federal + provincial rates.

For example, in British Columbia for 2025:

• Provincial brackets: 5.06 % on the first $49,279, 7.70 % on the next portion, etc.

Thus, someone earning in a bracket that is federally taxed at 20.5 % will also pay whatever provincial rate applies to their income portion in BC (or whichever province they reside in).

Adjustments and indexing for inflation

The 2025 federal tax brackets were indexed upward by 2.7 % to account for inflation.

This ensures that inflation doesn’t push taxpayers into higher brackets too quickly.

Additionally, the personal basic amount (the portion of income you can earn before federal tax is applied) is also adjusted under indexation rules.

Why the blended 14.5 % rate matters

Because the 1 % tax cut starts mid-year, the full-year 2025 rate for the lowest bracket is effectively 14.5 %, not 15 % or 14 %.

In 2026 and later, the first bracket rate will fully be 14 %.

That means in 2025, during payroll and withholding calculations, special care is needed to reflect the transition.

For 2025, the federal brackets and rates have been adjusted for inflation, and a planned cut to the lowest bracket will take effect mid-year. 

What are the 2025 federal tax brackets and rates?

For 2025, the Canada Revenue Agency confirms the following federal income tax brackets and marginal rates apply to taxable income (after deductions, credits, etc.).

Because the 1 % cut of the lowest rate begins July 1, 2025, the full-year effective lowest marginal rate for 2025 is projected to be 14.5 % (a blend of 15 % for the first half and 14 % for the second half) for income in the first bracket.

Why is the lowest bracket rate being reduced?

On May 27, 2025, the federal government introduced a legislative motion to reduce the lowest marginal tax rate from 15 % to 14 %, beginning July 1, 2025.

This change is intended to provide tax relief to middle-income Canadians. 

The indexing of tax credits and thresholds for 2025 already reflects inflation adjustments of 2.7%.

Because the cut happens mid-year, payroll withholding tables will use the 14 % rate for the second half of the year.

How do federal tax brackets interact with provincial / territorial taxes?

The amounts above are federal only. In Canada, each province or territory applies its own tax rates and brackets in addition to the federal tax.

For example, in British Columbia, the 2025 provincial brackets are:

• 5.06 % on first $49,279
• 7.70 % next bracket
• 10.50 %, 12.29 %, 14.70 %, 16.80 %, and 20.50 % in higher ranges

So when calculating your total tax, you stack federal + provincial margins on your different income slices.

What are the “constant K” values in payroll tables?

In CRA’s payroll deduction formulas, each tax bracket is associated with a “constant” (K), a number used to simplify withholding calculations.

For 2025, the January to June 30 tables for Ontario show:

1. K = 0 for first bracket
2. K = $3,156 for the second bracket (over $57,375)
3. K = $9,467 for the third
4. K = $14,803 for the fourth
5. K = $24,940 for the top bracket

These constants simplify the formula: tax = (taxable income × rate) – K.

How do these changes affect average Canadian taxpayers?

Here are a few implications:

1. Taxpayers with income in the lowest bracket (up to $57,375) will benefit most from the rate cut.
2. Because the cut takes effect July 1, new withholding tables reduce tax withheld for the remainder of the year.
3. The personal (basic) amount — the income portion that’s not taxed — is also indexed upward. In 2025, the maximum basic personal amount is $16,129.
4. For higher income brackets, the rates remain unchanged from their 2024 levels.

While the policy has evolved, understanding how it works in 2025, its limits, eligibility, interactions with other incentives, and planning considerations is crucial for business owners and tax professionals.

What is Immediate Expensing under CRA rules?

Immediate expensing allows a business to deduct 100 % (or a high percentage) of the cost of eligible depreciable property in the year it is put into use. 

This accelerates the tax relief of capital investments. 

Under the Income Tax Regulations (section 1104), a new measure introduced via Bill C-19 allows certain eligible persons or partnerships (EPOPs) to apply this deduction to “immediate expensing property,” subject to conditions and limits.

The eligible property must satisfy some conditions (new, not previously owned in a non-arm’s length transfer, etc.) and must be designated on the tax return in the year it becomes available for use.

Who qualifies to use immediate expensing in 2025?

To be eligible to claim immediate expensing under the rules:

1. You must be an eligible person or partnership (EPOP) per ITR 1104. That includes:
    • Canadian-controlled private corporations (CCPCs) that are residents, or
    • Individuals (other than trusts) resident in Canada, or
    • Certain partnerships whose members are all EPOPs.
2. The property must be depreciable capital property subject to CCA rules, but not a property in CCA classes 1 to 6, 14.1, 17, 47, 49, or 51 (which are typically buildings, long-life assets, and similar).
3. The property must be new to you—not previously owned by you or a non-arm’s length person, and not acquired via a tax-deferred rollover.
4. The property must become available for use in the taxation year. You must designate the property for immediate expensing in that year’s return.
5. If your business is part of an associated group of EPOPs, the $1.5 million limit (see next section) is shared among them.

Note that multi-tiered partnerships (i.e., partnerships that have other partnerships as members) are excluded from claiming under immediate expensing.

What is the $1.5 million limit and how is it applied?

One key constraint is the immediate expensing limit (IEL): up to $1,500,000 per taxation year, of eligible property cost can be expensed. 

That limit is shared among all associated EPOPs.

1. If your eligible property acquisitions exceed that limit in a year, you can choose which portion of your eligible additions to designate as immediate expensing, and the remainder is treated under regular CCA rules.
2. The limit cannot be carried forward to future years. If you don’t use the full $1.5M in a given year, the unused portion is lost.
3. For short taxation years (less than 365 days), the limit is prorated accordingly.

How immediate expensing interacts with other tax incentives

Immediate expensing does not reduce your eligibility for other enhanced deductions or incentives, such as:

• Full expensing for manufacturing and processing machinery and clean energy equipment under the connected Accelerated Investment Incentive (AII) measures.
• Accelerated CCA or enhanced first-year allowances under the AII (which may be phased or modified).

Also, when claiming immediate expensing, the half-year rule (which normally limits CCA in the year of acquisition) does not apply for the portions of property designated under immediate expensing.

But note that immediate expensing measures are currently phasing out for property that becomes available after 2023 and before 2028, particularly for manufacturing, processing, clean energy, and zero-emission vehicles.

Budget 2024 proposed reinstating or extending some of the immediate expensing measures for certain equipment acquired after January 1, 2025, that becomes available before 2030, but these remain draft proposals.

How to claim immediate expensing on a tax return

To claim immediate expensing:

1. Designate the property on your tax return in the year it becomes available for use. The property must be listed as a Designated Immediate Expensing Property (DIEP).
2. Fill in the CCA forms (for example, T2 Schedule 8 for corporations) using the newly added columns to reflect the immediate expensing amounts. The CRA’s capital cost allowance guides specify these form areas.
3. If you’re in an associated group of EPOPs, you must fill in Area G to state how the $1.5 million limit is allocated among group members before proceeding with CCA calculations.
4. The addition cost of property goes in Area B / C additions, and the portion designated for immediate expensing is separated in the designated columns.

If a property qualifies but was not designated originally, one may consider amending the return, if permitted.

Planning strategies and considerations for 2025

1. Timing matters: Because unused limit cannot be carried forward, timing your capital acquisitions in years where you have capacity is important.
2. Class selection: If you exceed the $1.5M limit, prioritize applying immediate expensing to property in CCA classes with lower depreciation rates to capture more benefit.
3. Associated group coordination: In group scenarios, allocate the $1.5M strategically between related corporations or businesses to maximize tax benefit.
4. Monitor phasing rules: Because many immediate expensing provisions are in phase-out and proposed reinstatement phases, keep abreast of legislative changes, especially for new equipment classes (e.g., classes 44, 46, 50) that may gain 100 % expensing eligibility under new proposals.
5. Keep proper records: Document acquisition dates, costs, usage, and ensure the property was not acquired from related parties in rollovers, as that would disqualify it.
6. Watch for CRA processing delays: Some tax return systems or schedules may not yet accommodate immediate expensing claims seamlessly; you may receive requests for supporting details.