"On a $5,000 net in-kind withdrawal, you'd pay $1,250 – 20 per cent – as mandatory withholding tax from cash held within the RRSP, explains Aaron Hector, vice-president of Calgary-based Doherty and Bryant Financial Strategists. On your tax return the following year, you'd pay tax on $6,250 of gross RRSP income at your top marginal rate: If you're at the 46-per-cent tax rate, that is $2,875 of tax, of which you have paid $1,250 and $1,625 remains owing, for a total of $5,750. (But the adjusted cost base for the withdrawal-in-kind remains $5,000.)"

Why is 20% of $5,000 =$1,250?   Why would you pay tax on $6,250 when you have only withdrawn $5,000?