Tax Tips for Seniors

Tip 1 – Always file a tax return even if you have no income

Many retired individuals that have low or zero income assume they do not have to file a return.  This is a big mistake and can lead to a loss of hundreds of dollars in benefits and credits.  These include GST/HST Credit, Trillium benefit amongst others that can only be received if a return is filed.

Tip 2 – Pension Income Tax Credit

You can claim a credit for eligible pension income, the maximum amount for 2013 is $2,000.  Common eligible pension income includes: life annuity payments form a pension plan, payments from a registered retirement income fund, annuity payments from a retirement savings plan, deferred profit sharing plan or a pooled registered pension plan, regular annuities, and period payments from a defined contribution.

Tip 3 – Pension Income Splitting

Income splitting is simply attributing earned income of one spouse to another spouse for the purpose of assessing income tax and reducing tax rates and lowering overall tax liability.  It also provides the pension income tax credit to the spouse with the lowest income or increase’s their pension income tax credit.

Tip 4 – Age Amount Tax Credit

This credit is available to those 65 years of age with an income that does not exceed $80,255 for the tax year. 

Tip 5 – Family Caregiver Tax Credit

This credit is usually available to children who provide care for their parents who have physical and or mental impairment.  For 2013, the total amount is $2,040.

Tip 6 – Disability Tax Credit

This tax credit is provided for individuals who suffer from a severe and prolonged impairment in physical or mental functions.  Some examples include: diabetes, dementia, chronic pain, hip pain, hearing impairment, depression, post traumatic stress, osteoarthritis, arthritis, alzheimers, anxiety, paralysis, and herniated disc.  The total amount for 2013 is $1,600.

Tip 7 – Deferring Old Age Security (OAS)

You can choose to defer this pension for up to five years after you become eligible at age 65.  The pension will be increased by 0.6% for every month that you choose to delay it, up to a maximum of 36% at age 70.

Tip 8 – Transfer  Unused Credits

If your spouse or common-law partner cannot use all of their federal tax credits, you can claim the unused portion.  Credits that can be transferred include the pension credit, disability tax credit, and the age amount credit.

Tip 9 – Registered Retirement Income Fund

The RRIF is an extension of the RRSP.  At the age of 71, it has to be converted into an RRIF.  The entire amount in the RRIF can be used to fund your retirement.  However, no funds can be contributed once it is converted.  Failure to convert entire amount of RRSP into an RRIF will result in the balance being taxed at 30%.

Tip 10 – Pension Sharing

Pension sharing is possible if a partnership where both individuals are over the age of 60 as long as one of the individuals have contributed to the CPP. 

Tip 11 – Super Donor Tax Credit

If you are a first time donor or have not claimed a donation credit within the last 5 years, then consider making a donation to claim this new super credit.  You can get back 40% for the first $200 and 54% for any amount above $200 up to $1000. 

Tip 12 – Deferring Capital Gains on Deemed Disposition

There is usually capital gains tax on deemed disposition of any assets.  One option to reduce this tax is to use the lifetime capital gains exemption which is $800,000.  Another option is to transfer assets to your spouse.  Leaving assets to charities will also eliminate any capital gains tax liability. 

Tip 13 – Estate Planning

For estate planning purposes, consider giving your family and children assets as ‘gifts’, this will reduce capital gains tax that would normally have to be paid upon death on appraised value.  Upon the death of a tax payer, assets are usually distributed automatically unless specified by the value. 

Tip 14 – Set up a Spousal Trust

As part of your estate planning, setting up a spousal trust can  be beneficial for your spouse.  Specific assets or properties will be set aside to support the deceased individuals living spouse.  The spousal trust will defer the income tax on unrealized capital gains until the death of the surviving spouse. 

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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