Our annual Tax Tips Guide is here to assist you in your tax planning, presenting some quick ideas and strategies for you to employ.
Pensioners, retirees and pre-retirees
1. Income splitting opportunity: Individuals receiving pension income that qualifies for the pension credit can allocate up to half of this income to their spouse or common-law partner. A determination of the optimal allocation should be considered in tandem with the couple’s continued ability to qualify for Old Age Security payments and certain personal tax credits.
2. If you carry on business through a corporation (for example, a professional corporation or consulting business) and your spouse owns shares but is not involved in the business, you can split dividend income of the corporation with them as long as you have attained the age of 65 years during the year the dividend is paid. This income splitting is permitted even though your spouse themself may be under the age of 65. In contrast, dividends paid when you are under the age of 65 to your spouse who is not involved in the business, will attract tax at the highest marginal tax rate under the Tax on Split Income (“TOSI”) rules.
3. An individual’s Registered Retirement Savings Plan (“RRSP”) must be converted to a Registered Retirement Income Fund (“RRIF”) or be used to acquire a qualifying annuity by the end of the year in which the individual turns 71.
An individual who turns 71 in 2021can make RRSP contributions by the end of 2021, to the extent contribution room is available.
An individual can continue to contribute to a spousal RRSP until the end of the year in which his or her spouse turns 71, to the extent contribution room is available.
For 2015 and later years, the Government introduced a reduction in the minimum amount that must be withdrawn from a RRIF for a holder who is over the age of 71. The lower RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages.
Did you know?
The maximum RRSP contribution limit is $27,230 for 2020 and $27,830 for 2021. You have until March 1, 2021 to contribute to your RRSP and benefit from the deduction in your 2020 tax return. Contributions made between March 2 and December 31, 2021, will be eligible for deduction on your 2021 tax return.
The amount of earned income required in 2021 to maximize your 2022 RRSP contribution room is $154,611 and $151,277 in respect of your 2021 contribution room.
Canadian Pension Plan (CPP)
Below are some noteworthy highlights of the CPP:
1. The maximum contribution to the base CPP for employers and employees in 2021is $3,166.45. If you are self-employed, the contribution is $6,332.90.
2. The maximum earnings on which the CPP applies is $61,600 for 2021.
3. If you are an actively working employee between the ages of 60 and 65, you must continue to contribute to the CPP even if you are already receiving a CPP retirement pension.
4. If you are an actively working employee between the ages of 65 and 70, you can choose to continue to contribute to the CPP or you can opt out of making these contributions.
5. Any contributions you make to the CPP, regardless of your age, will increase your CPP benefits even if you are already receiving a CPP pension benefit.
6. You will be able to receive your CPP retirement pension without any work interruption.
7. Your employer must match your CPP contributions in each of the scenarios described in (3) and (4) above. Your employer must make these contributions regardless of whether you are already receiving a CPP pension benefit.
Did you know?
The CPP contribution rates have increased, with the current contribution rate set at 5.45 per cent for employees and 10.9 per cent for self-employed individuals for the 2021 taxation year. The CPP contribution rate will continue to increase by 2025 to 5.95 per cent and 11.9 per cent for employees and self-employed individuals, respectively. This is an effort by the Ontario government to ensure that retirees will have sufficient income past retirement in case they were unable to save during their working years.
Old Age Security (OAS)
1.The value of the Old Age Security (“OAS”) benefit for eligible seniors over the age of 65 is approximately $7,384 per year (indexed quarterly for inflation) but is generally reduced where net income exceeds $79,845 and is completely eliminated where income exceeds $129,075.
2. Individuals who retired on or after July 1, 2013 may choose to delay receipt of their OAS for up to five years beyond the normal benefit start date of 65, in exchange for an increased monthly pension of 0.6 per cent (up to a total of 36 per cent annually) for each month that the benefit is delayed.
3. If you have already started receiving OAS payments but would like to benefit from the deferral, you can write to Service Canada to request a cancellation of your OAS pension, provided you have been receiving the pension benefits for less than six months, but you will have to repay the benefits you have received to date.
Watch more here.
Adam Scherer
Managing Partner
Adam Scherer Professional Corporation