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. Lower income seniors may also be entitled to Old Age Security (OAS) benefits. Both of these incomes are subject to taxation and must be reported on the annual tax return.
Registered Retirement Income Fund
A registered retirement income fund is an arrangement between the senior and a carrier, such as an insurance company, a trust 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 a RRIF grow tax-free, and amounts paid out of a RRIF are taxable on receipt.
Pension Income Deduction
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 deduction up to $2,000 as of 2014. 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. Ensure you meet all the criteria.
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 a RRIF transferred to an 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, and amounts distributed from a retirement compensation arrangement.
Other than RRSPs and RRIFs, seniors my 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.
Working Income Tax Benefit for Working Seniors
The working income tax benefit 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 WITB. 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.