Senior-ity has tax advantages
There are a lot of advantages to getting older. Some of those benefits can be found in Canada’s tax laws. In fact, seniors should find a number of new benefits with the tax law changes this year and next.
Last year’s Federal Budget increased a number of basic tax credits for seniors. For 2006, the maximum pension income amount has been increased from $1,000 to $2,000. The increase translated into a federal tax savings of $152.50 on private pension income, annuities or RRIF withdrawals. However, this does not apply to Old Age Security or CPP retirement benefits.
Another increased credit is the age amount. Every year this amount is indexed for inflation but the government raised it another $1,000 above the inflation increase for 2006. If your spouse or common-law partner is unable to offset his or her age amount, pension income or disability amount against tax payable, the unused portion can be transferred to your return. This should result in a few less tax dollars payable for some seniors.
One of the biggest tax breaks for seniors will take effect in 2007 when income splitting is allowed. This is most beneficial when one spouse or common-law partner receives the bulk of the income. It means the higher income spouse can shift some of the eligible pension income to the lower income spouse. This will allow the income to be taxed in lower brackets and will mean significant tax savings for seniors in this position. But this option will not be available until next tax season.
But remember, the government does allow spouses or common-law partners to split CPP retirements benefits. It will depend on how long you have lived together when you were contributing to the plan but it does bring the income splitting tax advantages to the CPP benefit. If you think you are eligible, you will need to apply to Human Resources and Social Development Canada in order to receive approval. You are not allowed to just split your CPP income when you do your taxes.
For seniors receiving pension benefits from other countries, there are many tax treaties in place and you need to ensure you are complying with any agreements. For example, three years ago Germany and Canada updated their tax treaty and pensions from Germany are now subject to tax. It was an unwelcome surprise for many seniors at tax time.
If you are celebrating your 69th birthday this year, you have to convert your RRSPs into a form of retirement income before the end of this year or be taxed on the Fair Market Value of the plan. There are several options to consider before converting so investigate the one that best suits your needs.
For more information or to find the location nearest to you, please call 1-800-HRBLOCK or online at www.hrblock.ca