Tax season is upon us once again, and it can be a very daunting time for many. It’s important to be aware of the many saving strategies and benefits available, especially for retirees who are often drawing upon savings and have additional tax benefits available.
Pension splitting. This is a powerful tax-savings initiative that allows a spouse with a higher level of income to transfer eligible pension income to a lower income spouse or common-law partner, to help balance their income and thereby minimize the couple’s overall tax burden.
RRSP conversion to a RRIF. Many seniors wait to convert an RRSP to a RRIF at age 71 when it’s mandatory to start drawing upon your RRSP. However, once a retiree turns 65, RRIF income becomes a source of eligible pension income and can be used to pension-split between spouses.
The age amount tax credit. This non-refundable tax credit is offered to Canadians over 65 years of age. The maximum federal tax credit for 2018 is $7,333, providing up to $1,100 in tax savings if your income is below $36,976. The credit is reduced by 15 per cent of income in excess of $36,976 and is eliminated when income exceeds $85,863.
The old age security claw back. Kicking in on income over $75,910, it requires you to repay 15 per cent of OAS to the government on any income in excess of this amount up to your OAS entitlement. If possible, try to manage your income below $75,000 using income-splitting and other strategies to ensure you maximize your benefits.
“The number one question I get when working with seniors on their taxes is when should they start drawing on their CPP or RRSP,” says Jacob Milosek, CPA, CA and recipient of the CPA Ontario Emerging Leader Award. “There are many factors to consider, including the individual or couple’s income level, marginal tax rate, health status and overall spending habits. The answer is different for everyone and working with a professional can help to make the most beneficial financial decisions.”