Year-End Tax Planning Checklist – Seniors EditionWill
Are you age of 65 or above and enjoying retirement? As you have moved onto the next chapter of your life, the tax circumstances that pertain to you also evolved. We have provided a list of tax incentives and planning opportunities for you to consider before year-end.
To start things off, seniors age 65 and over should ensure that they have at least $2,000 of pension income each year to claim the maximum pension income credit. $2,000 is the maximum non-refundable pension credit that you are allowed to claim per year. Unused credit expires and does not get carry over to the following year.
Pension Income Splitting
If you have received pension income eligible for the pension tax credit (e.g., from an RPP, RRSP or RRIF), consider allocating up to one-half of the income to your spouse or common-law partner. The extent to which pension income splitting will be beneficial will depend on the marginal tax bracket of you and your spouse or common-law partner, as well as the amount of qualifying income that can be split. In many cases, the optimal allocation will be less than the allowable 50% maximum.
Also consider whether it is advantageous to withdraw additional amounts from your RRIF for pension income-splitting purposes.
Old Age Security (OAS)
If your current income is too high to receive OAS benefits, you should consider ways to reduce or defer income.
If you are not currently enrolled in OAS, you should consider the feasibility of deferring the start of your OAS benefits for up to 60 months after age 65. Your monthly payment will increase by 0.6% for every month of deferral. For example, if you defer OAS pension for one year, your monthly payment will increase by 7.2% (0.6% x 12 months). If your OAS entitlement is $500 per month, your monthly payment would increase to $536 per month.
Canada Pension Plan (CPP)
Seniors ages 60 to 70 who have not started collecting CPP payments should determine the best time to start receiving them. Benefits are reduced if you start before age 65 and increased if you start after age 65. For some it may be beneficial to begin CPP at the age of 60 due to health requirements.
If you take the CPP retirement pension early, it is reduced by 0.6% for each month you receive it before age 65. This means if you opt in to receive CPP retirement pension at the age of 60, you will receive 36% (0.6% x 60 months) less than if you had taken it at 65.
If you take your pension late, your monthly payment amount will increase by 0.7% for each month after age 65 that you delay receiving it up to age 70. If you delay to receive CPP retirement pension until age 70, you will receive 42% (0.7% x 60 months) more than if they had taken it at 65.
Inter Vivos Trust
If you are over the age of 64 and live in a province with high probate fees, you should consider establishing an inter vivos trust as part of your estate plan.
Are you turning 71 in the current year? If so, you should convert your RRSP to a RRIF, life income fund or registered annuity before year-end to defer taxes on the RRSP income. In the year after a RRIF is established, and each year following, there is a requirement to take a minimum amount out of the RRIF.
Home Accessibility Renovation Expenses
Seniors or an individual who supports a senior should consider paying for home renovation expenses before the end of the current year that allow the senior to gain access to, or to be mobile or functional within the home, or that reduce the reduce the risk of harm to the senior within the home, in order to claim the new home accessibility tax credit.