Turning 65 is a significant milestone in every Canadian’s life. With the changes in health and lifestyle also comes changes in financial income and taxes.
Understanding what these changes are and how to prepare for them is important in ensuring your taxes are done properly and without error.
Liu & Associates is here to help you understand exactly what changes tax-wise when you reach the age of 65.
What Changes After 65?
Once you turn 65, you are eligible for more tax benefits than younger taxpayers. These include a claimable age amount, pension income amount, medical expenses and other federal credits.
Because you will be receiving age-specific incomes, these payments must be in your yearly tax return.
The following payments are considered taxable income:
- OAS (Old Age Security)
- Retiring Allowance
- Other pensions and superannuation
- RRSP (Registered Retirement Savings Plan)
- Annuity payments
- PPRP (Pooled Registered Pension Plan)
- Retroactive lump sum payments
- Income from trust or a retirement compensation agreement
- RRIF (Registered Retirement Income Fund)
- CPP (Canada Pension Plan)
- QPP (Quebec Pension Plan)
Income Sources for Seniors
Being 65 years old and being retired are not mutually exclusive. Many senior Canadians work beyond the age of 65 and, in doing so, can still take advantage of supplemented incomes based on their age.
There are income programs, however, that focus specifically on retired individuals. That being said, income supplements such as OAS can be affected if additional income is made through part-time work.
These are various income sources for Canadian seniors that consider age as well as retirement:
Old Age Security (OAS)
OAS is an income supplement financed by Canadian tax dollars for individuals over the age of 65. It provided benefits to individuals over 65 and is considered taxable income.
Canada Pension Plan (CPP)
CCP is an income funded by payroll deductions and is available as early as 60 years of age. CPP is also taxed income source.
Guaranteed Income Supplement (GIS)
The GIS is available to low-income Canadians and is a non-taxed income.
Annuities are a financial product sold by an annuity provider, usually a life insurance company. They will pay a guaranteed regular income during retirement but the money received is taxable.
A superannuation is a company plan created by a company for the benefit of its employers to use during retirement. The funds deposited will grow until retirement is reached or the funds are withdrawn. This is a taxable income.
PPRP (Pooled Registered Pension Plan)
This retirement income option is geared toward individuals and self-employed individuals. This plan will move with you from job to job and is considered taxable income. However, it is only considered a “pension income” when you are 65 or older.
RRIF (Registered Retirement Income Fund)
RRIF’s are arranged between an individual and a carrier such as an insurance company, trust or bank. The fund is registered with the federal government and is taxable income.
Tax Benefits for Seniors
As mentioned above, there are tax benefits once you reach the age of 65. To take full advantage of potential tax benefits, speak to a full-service accounting practice such as Liu & Associates LLP to seek out all qualifying tax credits.
Once you reach the age of 65, you may be eligible to claim an age amount on your taxes. If your net income is less than $83,353, you are able to claim this tax credit.
Pension Income Amount
With the pension income amount, you can claim up to $2000 in credit on eligible pension income. These incomes include a pension or annuity income received as payment for a pension or superannuation plan or payments from an RRSP.
If you have any medical expenses that are not reimbursed and equal more than 3% of your income, you can claim them on your taxes.
These include more than prescription medication. As long as the medical necessities you are claiming are prescribed, you can claim items such as:
- Air conditioners
- Bathroom aids
- Hospital bed
- Orthopedic shoes, boots, and inserts
- Page-turner devices
- Walking aids
In order to claim these expenses, you need to keep your receipts.
Other Federal Credits
The CRA (Canada Revenue Agency) offers a Home Accessibility Tax Credit (HATC). This non-refundable tax credit is available for any home improvements that help to better your quality of life such as walk-in tubs, wheelchair ramps, and hands-free faucets.
Because this is a non-refundable tax credit, it can only be applied to reduce any tax owing and not put toward any refunded taxes.
Tax Tips for Seniors
While not much changes when it comes to filing taxes after the age of 65, there are some considerations worth noting to ensure the procedure is done properly and without error.
For more information regarding any changes to your tax return, please contact our accountants.
1. Stay Organized
Keep track of all your expenses on a monthly or bi-monthly basis. Try to keep all your paperwork, including receipts, in one place.
2. OAS and Part-time Income
If you work part-time while claiming OAS, the government will reduce your OAS payment if you make over $75,910 a year. This is called the “OAS clawback” and typically reduces your OAS by 15 cents for every dollar you earn over that amount.
3. Pension Splitting
When you are married or common law, the higher-earning partner can split up to half their pension income with the lower-earning partner. This spreads taxable income so that one partner is not taxed in a higher tax bracket.
Your RRSP contributions provide tax breaks but any money withdrawn is considered taxable income. By the end of the year that your turn 71 you will have to withdraw the funds, convert the funds to a RRIF or use them to purchase an annuity.
Have Questions About Filing Taxes?
If you’re confused about how to file your taxes after the age of 65, please do not hesitate to contact our professional and experienced accountants today.