If you’ve recently retired, you may be adjusting to a number of changes in your day-to-day life. Whether your retirement plans include travelling, spending time with grandkids, or simply enjoying your new freedom from the daily work grind, it’s the beginning of a new chapter of your life. Let’s take a look at how retirement also affects your taxes.
Types of Income you may receive
- RRSP/RRIF/Annuity payments
- Payments from a private/company pension plan
- Canada Pension Plan benefits
- Old Age Security benefits
- Guaranteed Income Supplement payments
Most retirees earn less money during the retirement years, but not everyone does. If you made sizable contributions to your RRSP, sold investments, still earn rental income, or continue to operate a small business part-time, your income may not change drastically. If this is the case, you may not qualify for certain benefit programs such as the OAS and GIS. Both of these programs, along with the GST/HST quarterly benefit, are income based (if your income exceeds the cap, you won’t receive these benefits).
Credits and Strategies
Retirees may be eligible for certain credits depending on age and income type. Other tax saving measures also open up for some retirees. These include:
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The Age Amount (Line 30100 of your T1)
As the name implies, the age amount is a credit given to those who have reached the age of 65 or more. This non-refundable credit, worth up to $7,637 for the 2020 tax year, is income tested. If your net income exceeds the cap of $89,422 you won’t be eligible for the credit at all. If your income falls between $38,508 and the cap amount, you’ll receive partial credit. This credit has a provincial component which varies in amount from province to province.
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Pension Splitting
If you receive certain types of income, you may be able to assign a portion to your spouse for tax purposes. Pension splitting allows a pension earner to “transfer” up to 50% of eligible pension income to a spouse. Of course, this is only on paper – no need to hand over half of your income to your spouse. By moving some income to a lower earning spouse, you may move into a lower tax bracket and end up with less tax payable. Amounts eligible for pension splitting are very specific. Most payments from RRSPs, RRIFs, and annuities qualify. CPP, OAS, most foreign pensions, and American IRAs do not.
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Pension Income Amount (Line 31400 of your T1)
Depending on the type of retirement income you receive, you may be eligible for an extra non-refundable credit at tax time. The pension income amount is a credit of up to $2,000, available to those who receive payments from RRSP, RRIF or annuities. If you split eligible income with your spouse, both of you may qualify for this credit – up to $2,000 each.
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Home Accessibility Tax Credit
The HATC is available to those aged 65 and over (as well as disabled taxpayers under 65 who hold a valid Disability Tax Certificate) who have made renovations to their homes to improve accessibility. For example, if you’ve installed a walk-in tub, non-slip flooring, or handrails, up to $10,000 of the expense can be claimed as a tax credit. Some improvements may also qualify for provincial credits or as medical expenses as well. In most cases, you can use the same expense more than once at tax time.
No matter what type of retirement income or credits you earn, TurboTax has you covered. With built-in optimizers for pension splitting and medical expenses, and step-by-step guidance, TurboTax Standard makes tax time a breeze.