There are several types of income for seniors including earnings, investment income, retirement income, and government transfers. Seniors in a low-income bracket can especially benefit from understanding what is available to help supplement their income.
Seniors who contributed to the Canada Pension Plan during their working years can receive CPP benefits – the exact payment amount is based on contributions made by the taxpayer. If you are under 70 and work while receiving the CPP, you can decide to continue contributing to the plan. You will receive extra payments called post-retirement benefits. The income from CPP will be reported on line 1140 of your income tax return.
Seniors can also receive Old Age Security (OAS) as a taxable benefit. CRA factors how many years you have resided in Canada to determine the eligible amount of OAS. Lower income seniors may also be entitled to non-taxable supplements such as Guaranteed Income Supplement (GIS) or allowances (spouse allowance or allowance for survivor). The income from OAS and GIS (including the allowances) are reported in the same T4A(OAS) slip. The OAS income that is subject to taxation in Box 18 must be reported on line 11300 of your income tax return. On the other hand, the GIS and the allowances are not subject to taxation and are reported in Box 21. You are still required to claim the income in Box 21 on line 14600 and add them to your total income. CRA will factor the extra supplements in calculating the federal and provincial benefits you are entitled to such as GST/HST credit. And since they are not taxable, you deduct the same amount in Box 21 on line 25000 before reaching your taxable income amount.
Registered Retirement Savings Plan
A registered retirement saving plan (RRSP) is a registered plan with CRA, that you establish with a carrier (financial institution, an insurance company, etc.). RRSP allows you to save and invest money for you or your spouse for retirement. The money you contribute and earn in this plan is sheltered from taxes until you withdraw it. At retirement, you can choose to receive the fun in lump-sum, annuity (periodic payments), or transfer it to another registered plan such as RRIF.
The money will be taxed based on your total income in the year you receive the pension. This income will be reported in line 12900 of your income tax return.
Quebec residents receive RL-2 slip with the RRSP amount reported in Box B. Claim this amount on line 122 of the Quebec return TP-1.
Registered Retirement Income Fund
A registered retirement income fund (RRIF) is an arrangement between a senior and a carrier, such as an insurance company, a trusted company, or a bank. Your property is transferred to the carrier from an RRSP, a registered pension plan, an SPP, or from another RRIF, and the carrier pays the senior a minimum amount each year. A minimum amount must be paid to you in the year following the year you entered into the RRIF. Earnings in an RRIF grow tax-free, and amounts paid out of an RRIF are taxable on receipt.
The income in Box 16, Box 20, or Box 22 from the T4RIF is reported on line 11500 if you are 65 years old or older or if you are under 65 years old and receiving benefits due to the death of your spouse or common-law partner. If you are under 65 years old and are not receiving benefits due to the death of your partner, you report Box 18 of your T4RIF on line 13000.
Registered Pension Plan (RPP)
The Registered Pension Plans (RPP) is a retirement plan arrangement between you and your employer or union to provide pensions upon retirement. Both employers and employees contribute to this plan. Since the contributions were deducted in previous tax years, the income received in retirement is subject to taxation.
The income from RPP is reported in the T4A slip. Annuity (periodic) pensions are reported in Box 16 and claimed in line 11500 of the income tax return if you are 65 years or older, or if you are under 65 years and receiving benefits due to the death of your partner. Otherwise, if you are under 65 years old and don’t receive benefits due to the death of a partner, claim the income on line 13000. The income reported in Box 18 of the T4A is claimed on line 13000.
For Quebec Residents, the RPP is reported in Box A of the RL-2 slip. This amount is also reported on line 122 of the Quebec return TP-1.
Pooled Registered Pension Plans (PRPPs)
The Pooled Registered Pension Plan is similar to RPP. However, it enables taxpayers to participate in a large pooled plan that is registered with CRA if their employer doesn’t offer an RPP option or if they are self-employed. Both employers and members contribute to this plan.
At retirements, the benefits will be paid and reported in Box 194 on a T4A slip. If you are 65 years old or older, or if you are under 65 but are receiving benefits due to the death of your partner, report the amount on line 11500. Otherwise, report the income on line 13000.
The PRPP for Quebec residents is reported in Box B of the RL-2 slip. Which is then applied to line 122 of the Quebec return Tp-1.
Deferred Profit Sharing Plan (DPSP)
The Deferred Profit Sharing Plan (DPSP) is a registered plan with CRA, that permits employers to share the profit of their business with their employees. Only the employer contributes to this plan. The contribution and the earned investment are not taxable until you start withdrawing the fund.
Income earned from the DPSP will be reported in the T4A slip Boxes 18 and 115. The income in Box 18 is claimed on line 13000 of your income tax return. The income in Box 115 (which is already included in Box 24) is claimed on line 11500; if you are 65 or older, or if you are under 65 years old but are receiving pensions due to the death of your partner. Report Box 115 on line 13000; if you are under 65 years old and are not receiving a pension due to the death of your partner.
Quebec residents will receive a federal T4A slip and a provincial RL-2 slip with the DPSP amount in Box B. Claim this amount on line 122 of the Quebec return Tp-1.
Pension Income Amount
Most pensions and superannuation are part of your total income and must be reported. Depending on the type of pension, superannuation, annuity, pooled registered pension plan, and registered retirement income fund payments you receive, you may claim a pension income amount up to $2,000. You may also qualify for the age amount depending on your age and income. Check this TurboTax link on tax credits for seniors. For Quebec residents, you can claim a provincial age amount on line 361 of your return TP-1.
A joint election to split up to 50 percent of your pension, superannuation, annuity, PRPP, RRIF (including life income fund), and specified pension plan payments may also be beneficial. There is an upper limit on the qualifying net income adjusted usually every year, along with a maximum amount that you can claim. There are certain qualifications that need to be met in order to do a pension split.
Income That Does Not Qualify for the Pension Income Amount
Pension or annuity income amounts that not qualify for the pension income amount include any foreign source pension income that is tax-free in Canada because of a tax treaty, income from a U.S. individual retirement account, amounts from an RRIF transferred to a registered retirement savings plan, another RRIF or an annuity, old age security benefits, Canada Pension Plan benefits, Quebec Pension Plan benefits, death benefits, retiring allowances, amounts distributed from a retirement compensation arrangement, and lump-sum pension payments.
Other than RRSPs and RRIFs, seniors may also receive taxable income from investments such as interest, stocks, and bonds, or real estate. It is important to note that there are no tax breaks based on age for capital gains. For example, if you are a real estate investor and sell a property for a profit, you will still be subject to capital gains, even if you are over the age of 65. Income from investments is added to other income at tax time and will factor into certain benefit payments such as OAS.
Canada Workers Benefit for Working Seniors
The Canada Workers Benefits (CWB) is a refundable tax credit that provides tax relief for eligible working low-income individuals and families who are already in the workforce. Only taxpayers who meet the basic requirements are eligible to receive the CWB. The basic requirements are that you must be over 19 as of December 31st of the tax year, you were a resident of Canada throughout the year and you were not a fulltime student for more than 13 weeks out of the year. Other limitations such as income caps apply but are raised if you have a spouse, an eligible dependant, or a disability.
TurboTax software offers an easy step-by-step guide to report income from various pension plans and to claim eligible credits. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.
*TurboTax Live™ Full Service is not available in Quebec.