Whether you are a retiree or thinking about retiring, there are many government programs you need to understand.  There is the Canada Pension Plan (CPP), the Old Age Security (OAS), and the Guaranteed Income Supplement (GIS).  How do they work?

How do RRSPs and RRIFs get taxed?

Can I split my pension income with my spouse?

How do I qualify for the age credit and the pension credit?

Can I write off medical expenses and travel insurance?


Canada Pension Plan


Age 60 - 65

You can start drawing but you will eventually face a 0.6% penalty for each month before age 65 (the penalty is increasing from 0.5% to 0.6% over four years starting 2012.

Maximum penalty if commencing at age 60 will be 36%.

You do not have to stop working for two months in order to qualify.

Even if you are collecting CPP, you must have it deducted from employment earnings.

As employers match your CPP contributions, they will now have to match your contributions.

You will have to contribute to CPP on your self-employed earnings.


Even if you are already collecting CPP benefits, you will have to start getting CPP deducted from pay cheques and pay CPP on self-employed earnings


Age 65 - 70

You automatically became eligible at age 65 to start drawing CPP.

You could opt to hold off on receiving your pension and you will eventually be rewarded 0.7% for each month you hold off until age 70 (the reward increases from 0.5% to 0.7% over the next two years).

Maximum reward for waiting until age 70 will be 42.0%.

If you continue working, you will have CPP deducted at source unless you opt out.  To opt out, you must submit form CPT30-11 to the CRA and your employer.

Your employer must continue to match your contributions until you opt out.

You must opt out if you have self-employed earnings and you no longer want to contribute.


Old Age Security

The Old Age Security (OAS) basic pension is paid to you monthly if you are 65 years or older and have lived in Canada for at least 10 years.  You will not automatically receive OAS.  You have to apply in writing.

If your income exceeds around $63,000, you may have to repay all or part of your OAS pension.  This is referred to as the OAS Clawback.

You must apply for the Guaranteed Income Supplement (GIS).

Contact them for an application form at (800) 277-9914.


Pension Splitting

What are the benefits of splitting my pension?  First, you may be able to move income from one tax bracket to that of a lower bracket spouse.  Secondly, you AND your spouse may qualify for the pension credit.  This has the potential of being a senior's single biggest tax saving tool.

Generally, you can allocate up to one-half (50%) of your eligible pension income to your spouse or common-law partner. There is no minimum or maximum dollar limit on the amount you can allocate.

The key thing here is to know what is considered an "eligible pension".  I will attempt to answer this in laymens' terms.

A private pension from a past employer, such as Ontario Hydro, is eligible.

RRIFs and RRSP annuity payments are considered eligible if you are 65 years old or older.  Until then, they are not eligible for pension splitting.

CPP and OAS are NOT eligible for splitting.

What if my spouse is not 65 years old?  The amount can still be split.  However, the spouse may not be eligible for the pension credit.  This may still be a huge benefit if amounts can be taxed in a lower bracket.


Age and Pension Credits

If you are 65 or older on December 31, you may be able to claim the age credit.  The $5,000+ credit gets reduced starting around $31,000 and is fully eliminated around $66,000.

Unused age credits can be transferred to your spouse.

Eligible pensions qualify for the pension credit.  The maximum amount for this claim is $2,000.  Read the section on income splitting to see what qualifies as an eligible pension.  For example CPP and OAS do NOT qualify.

As with the age credit, unused pension credits can be transferred to your spouse.


Complicated?  I agree.  Let us do your taxes and guarantee you get what's coming to you.