Let’s talk about the Pension Tax Credit (I can hear your excitement!). This credit is available on the first $2,000 of eligible pension income and equals 15% of the pension income to a maximum federal tax credit of $300 (15% of $2,000). There may also be additional provincial pension tax credits, depending on where you reside..
The total federal and provincial tax credit could be over $700. It’s a great way to reduce taxes payable for folks aged 65 and older.
So are you eligible? We can use this questionnaire on the CRA website to find out.
Pensions that don’t qualify for the credit: CPP, QPP and OAS.
This strategy can also be combined with pension income splitting so that each spouse gets to reduce their taxes so it can be doubly potent.
For example, if both spouses are over the age of 65 and only one is receiving a pension, up to 50% of the pension could be split with the other spouse, and that spouse could claim the pension tax credit as well.
The Mini-RRIF
Here’s how it works. Starting at age 65, RRIF (Registered Retirement Income Fund) income qualifies for the pension tax credit. The concept is to open a “mini” RRIF at age 65 by transferring $12,000 from your RRSP to a new RRIF. Then between the ages of 65 and 71 take out $2,000 per year from your new RRIF and apply the pension tax credit.
And remember all periodic income from insurance-based products, annuities, RRIFs, LIFs qualify as pension income with respect to this credit. This includes non-registered annuities as well. But, be careful, ad hoc withdrawals do not count as pension income and therefore not eligible for the credit.
This is a simple yet powerful strategy that could allow you and your spouse to take advantage of a simple tax credit and pocket up to $700. It is worth looking into.
If you would like to chat about the mini-RRIF strategy for yourself or your partner, please feel free to reach out to me for a free call here: FREE 15-MINUTES.
I wish you health and happiness always.
With Gratitude,
KB.
THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.