Retirement

Tax Credits for Those Over 65

If you were 65 years of age or older on December 31, 2015, then you might be eligible for some tax breaks.

You might be eligible to claim a tax credit for being 65 years of age or older, depending on your income level. The maximum age credit is reduced once net income for the 2015 tax year exceeds $35,466 for federal tax purposes and $33,174 for BC tax purposes, and declines to zero when net income exceeds $82,353 for federal tax purposes and $62,887 for BC tax purposes. In 2015, the maximum combined Federal and British Columbia age tax credit can reduce your taxes payable by as much as $1,280.

You might also be eligible to claim the pension income tax credit, calculated on the lesser of $2,000 and the eligible pension income you included in income for the year. The combined Federal and British Columbia tax credit can reduce your taxes payable by as much as $351.

Eligible pension income includes annuities (not a lump sum) you receive from superannuation or registered pension plans, RRSP annuities, or payments from a registered retirement income fund (RRIF) and annuity payments out of a deferred profit sharing plan (DPS). Old Age Security and Canada Pension Plan income do not qualify for the pension credit, although US Social Security will qualify to the extent that it is taxed in Canada. The pension credit is also available to individuals under 65 years of age on life annuity payments from superannuation or pension plans and on certain annuity payments arising by virtue of the death of a spouse.

If you are 65 or older and your only source of pension income is from Old Age Security and Canada Pension Plan payments, but you have an RRSP, you may qualify for the Pension Income Credit by transferring a sufficient amount of RRSP funds into a RRIF or annuity to create qualifying pension income.

If you are under 65 years of age and receiving income from a pension plan, or income from RRSP annuities, RRIFs, and certain other annuities as a result of the death of your spouse, you may also qualify for the credit.

You might also be able to file an election to split up to 50 per cent of your eligible pension income with a spouse or common-law partner. If you were 65 or older during 2015, consult a Chartered Professional Accountant to see what tax breaks you might be eligible for.

Foreign Pension Income

Canadian residents are required to report worldwide income on their Canadian income tax return. This would include pension income from foreign pension plans and US social security benefits. Under the Canada–US Income Tax Convention, only 85% of US social security benefits are taxable in Canada. However, effective for the 2010 and subsequent taxation years, Canadians will be able to claim an additional deduction of 35% of US social security benefits if they have been resident in Canada and have continuously, since before 1996, received US social security benefits in each taxation year. The additional deduction can also be claimed if the benefits are paid to a taxpayer in respect of a deceased spouse or common-law partner who received benefits prior to 1996.

Some foreign pension income is eligible for pension income splitting. Generally, Canadian residents who are 65 years of age or older at the end of year can transfer up to 50% of their pension income to their spouse or common-law partner if they jointly sign and file Form T1032. Where the Canadian resident is not 65 years of age at the end of the year, only “qualified pension income” that is eligible for the $2,000 pension income amount is eligible for pension income splitting.

A Canadian resident may transfer certain payments from a foreign pension plan to an RRSP provided the amount is included in income and attributable to services rendered by the individual, or his/her spouse or common-law partner, in a period throughout which the individual, or his/her spouse or common-law partner, were not resident in Canada. The transfer should be made within 60 days following the end of the year in which the income is received, and it may be made over and above the individual’s regular RRSP contribution room.

A foreign tax credit can be claimed on the Canadian income tax return where the foreign pension income is taxable in the foreign country to reduce the person’s overall Canadian tax liability. Taxation of a foreign pension received by a resident in Canada may vary depending on the tax treaty Canada has with the payer country. If you earn foreign pension income, contact a Chartered Professional Accountant to determine whether the foreign pension income is taxable in Canada.