Retirement isn’t just a significant milestone in your personal and professional life – it’s also a major shift in your tax situation. With tax season in full swing, here are expert tips to help retirees make the most of their tax returns this year. If you or your spouse or common-law partner earns significantly more than the other, you can allocate up to 50 percent of eligible pension income to the lower-earner.
This can lower your overall tax bill, says Prashant Patel, vice-president of high net worth planning services at RBC Wealth Management. Eligible pension income includes payments from a registered retirement income fund (RRIF) and annuities. For example, seniors with earnings of more than $90,997 in 2024 must pay the Old Age Security (OAS) recovery tax, known widely as the OAS clawback.
For every taxable dollar made over that amount, your pension will be reduced by 15 cents. If you earned $100,000 and your partner earned $60,000, transferring $20,000 of your pension income could bring both your incomes down to $80,000, helping you avoid the clawback. Sharing your Canada Pension Plan (CPP) benefits works similarly to pension splitting, says Faisal Karmali, senior wealth adviser at the Popowich Karmali Advisory Group.
If you and your spouse or common-law partner receive different CPP amounts, you can apply to share your benefits. The Canada Revenue Agency determines the amount based on how long you lived together during your working years. If you were 65 or older at the end of 2024 and your net income is less than $102,925, you may qualify for the age amount tax credit, said Chad Brown, an Edmonton-based tax lawyer.
For incomes of $44,325 or less, the maximum credit is $8,790. You can also transfer any unused portion of this credit to your spouse. If you’re 65 or older and receive eligible pension income, you may qualify for a tax credit on $2,000 of that income – translating into up to $300 in federal tax savings.
If you don’t currently receive a pension, consider converting enough registered retirement savings plan (RRSP) assets into a RRIF to withdraw at least $2,000 a year and qualify for this credit.
Expert tips for reducing retirement taxes
You can claim medical expenses that exceed either 3 percent of your net income or $2,759 – whichever is lower.
Keep receipts for all medical-related purchases to maximize your claim. If you or a dependent who is 18 years or older have a disability, you may also qualify for the disability tax credit for up to $9,872 for 2024. Additionally, seniors can claim the home accessibility tax credit for renovations that improve mobility and safety, such as installing handrails or a walk-in bathtub.
If you’re renovating to create a separate living space for a senior or an adult with a disability, you may also qualify for the multigenerational home renovation tax credit, which covers up to $7,500 in eligible expenses. After turning 71, Canadians must decide what to do with their RRSP. Simply withdrawing money from an RRSP can lead to high taxation.
To avoid this, many Canadians convert their RRSP to an RRIF. You have to make mandatory minimum withdrawals from an RRIF every year, whether you need the income or not. Since an RRIF is considered pension income, you can split up to 50 percent with your partner.
If you receive pension income from abroad, check if there is a tax treaty between Canada and the foreign country that provides for an exemption or reduced tax rate, says Daniel Dwyer, a tax partner with KPMG Canada. You can also claim a foreign tax credit for any taxes paid abroad. Once you have gotten through your taxes for this year, you should already be planning for next year, said Mr. Karmali.
The biggest mistake he sees is Canadians doing their tax planning too close to tax season. “Tax planning starts January 1st of the calendar year,” he said, meaning tax planning for 2025 should have started in January. Use this tax season as a measuring stick for future planning, noting any errors made during 2024 to avoid them in 2025 and beyond.
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