Retirement may give you the chance to sleep late and live leisurely, but you don’t want a large tax bill spoiling your fun. To maximize your benefits and lower your tax obligations, check out these five tax-saving tips for retired residents of Canada.
1. Split Your Pension
The Canada Revenue Agency requires seniors earning over a certain threshold to pay a 15 percent Old Age Security recovery tax on income over the threshold. For the 2017 income year, the minimum threshold is $74,788, but this figure changes annually. If you are being assessed the recovery tax and your spouse earns less than the threshold amount, split some of your pension income with him.
For example, if you earn $80,000 per year and your partner earns $60,000, transfer $10,000 worth of your annuity, RRSP or RRIF payments to your partner. That transfer brings both of your incomes to $70,000, keeping your family income the same while helping you to avoid the OAS recovery tax.
2. Share Your Pension
If you and your spouse or common-law partner do not receive equal Canada Pension Payments, consider sharing your CPPs. When you apply to share pensions, the CRA bases the amount shared on how long you were with your partner during your working years. Sharing pensions can increase the income of one partner while decreasing the income of the other partner and offers similar tax benefits as splitting your pension.
3. Claim the Age Amount Credit
Canadian tax filers over a certain age may claim the age amount tax credit. Filers had to be 65 years of age by the end of the tax year to qualify for this credit. If they earned less than $36,430 per year, their credit was $7,225 reports the CRA. The credit decreases as income increases, and seniors earning over $84,597 do not qualify.
4. Transfer Unused Age Amount Credits
The age amount credit reduces taxes you owe, but as a nonrefundable credit, it cannot create a refund for you. However, unused age amount credits can be transferred to your partner. For example, if you qualify for a $6,000 age amount credit, but you only owe $4,000 in taxes, you can transfer the unused nonrefundable credit to your partner to lower his tax burden.
5. Claim Medical Expenses
Medical expenses that exceed the lesser amount of 3 percent of your net income, or $2,237 (the limit set by the CRA), can be claimed on your tax return. Keep your receipts for every medical-related purchase, as you can claim a range of expenses. For example, individuals with certain chronic illnesses can claim up to half of the cost of a new air conditioner, while people who suffer from celiac disease may claim the difference between the cost of gluten-free food and regular food.
If you are disabled, you may be able to claim the disability tax credit to reduce the amount of tax you owe. If you take care of a disabled or ill partner, you may qualify for the family caregiver amount.