Understanding Seniors’ Tax Credits

Whether you are fully retired, working part-time or your working career is winding down, there are a variety of tax credits for seniors that can help you manage on a fixed income. The age amount and pension income tax credits are just two of the many tax credits Canadian seniors can use to reduce their taxable income.

The Age Amount

Similar to Old Age Security, the age amount is a means-tested benefit with a clawback amount. This non-refundable tax credit is targeted at reducing the taxable income of low- to middle-income seniors 65 years of age or older.

You only qualify for the full benefit of $7,494 if your net income is below $37,790. If your income is between $37,790 and $87,750, you qualify for a partial amount. Taxpayers with an income over $87,790 do not qualify for the age amount. For example, if your net income is $88,000, you do not qualify for the age amount. However, if your net income is $30,000, you qualify for the full amount and receive a tax credit.

The Pension Income Tax Credit

The pension income amount is a tax credit you can take advantage of when you decide to start your workplace pension plan. If you reported eligible pension, annuity or superannuation income on your tax return, you may be able to claim up to $2,000.

Eligibility and Claims

Unlike the age amount, you can still claim this tax credit even if you are under age 65, but you only certain types of pension income qualify. If you are less than 65 years old, you can claim pension or superannuation life annuity payments, registered retirement income fund payments, registered retirement savings plan death benefit payments for your spouse or common-law partner, and Saskatchewan pension plan annuity payments.

Some forms of retirement income do not qualify for the pension income amount. You cannot claim income you are receiving from the Canada Pension Plan, OAS, death benefits or retirement allowances toward the pension income amount. For example, while you can claim the full tax credit of $2,000 for a monthly pension of $500 you receive from your employer, you cannot claim the pension income amount for the monthly CPP amount of $950 you receive.

If you don’t have a pension plan at work, there are ways to create pension income that qualifies for the pension income amount. One way is to convert your RRSPs to RRIFs in the year when you turn 65 years old. Another way is to use your RRSP money to buy an annuity.

If your spouse or common-law partner does not have any income that qualifies for the pension income amount, there is a way you can still benefit from it. With pension income splitting, you may be able to split your eligible pension income with your spouse to help reduce your taxable income.