Tax Planning for Retired Canadians

February 26, 2018

Tax Accounting Services Toronto
[et_pb_section bb_built=”1″][et_pb_row][et_pb_column type=”4_4″][et_pb_text _builder_version=”3.0.86″ background_layout=”light”] When planning for retirement, you may focus too much on how much you’ll make from the different investments and forget about the taxes you’ll have to pay. There are several credits that you can use to lower your tax burden when you receive your retirement income. Other strategies such as splitting retirement pension income with your spouse or using claiming pension income tax credit can help you lower your tax bill. Whether you’re still thinking of planning for retirement or you have just a few more years to retire, we’re here to help you plan for this and save thousands of dollars in the process. Below are some practical tax tips for anyone who’s planning for retirement.

Take Advantage of Pension Income Tax Credit

This tax credit can be used by anyone who has attained the age of 55. You are able to receive a tax credit of up to $20,000. If your pension income is lower, you can receive a tax credit for the whole amount. This can actually save you hundreds of dollars each year in taxes.

What’s Pension Income?

Pension income can be made in several ways including:
    • 1. Income from a pension fund, a registered retirement income fund, foreign pensions or superannuation
    • 2. Annuities received from an RRSP or a deferred profit sharing plan
The best part about the pension income tax credit is that you can transfer it to your spouse.

The Age Amount Tax Credit

Another tax credit that is available to individuals who are 65 years or older at the end of the taxation year is the age amount tax credit. Like other credits and tax deductions, the maximum amount that you can claim increases each year. The main purpose of this tax credit is to lower the tax burden of seniors who find themselves with increased health care costs by allowing them to claim a deduction. For you to qualify then your net income needs to be lower than the maximum amount. This means that if your income is too high, you will not qualify for this tax credit.

Splitting Retirement Pension Income with Your Spouse

Income splitting is another additional strategy that you can use to lower your tax burden. This can be a great advantage if one spouse earns a much higher income and is therefore in a higher tax bracket than the other. Splitting the income allows you to receive equal shares of the Canada pension plan income that was earned. It can help you to save so much in taxes. However, both partners need to be residents of Canada.

The Registered Retirement Income Fund

There’s an option to convert your RRSP into RRIF when you turn 71. This fund allows seniors to withdraw their money and finance their lifestyle after retirement. Once you make this switch, you can no longer make contributions to the pension fund. There are possibly other ways to save on taxes depending on your unique situation. Speak to a tax accountant who will evaluate your financial position and other factors like lifestyle then provide sound advice to lower your tax bill. [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]