Start your engines for Crowe Soberman’s Tax Season Speedway! We’re delivering swift insights and actionable strategies to help pensioners, retirees, and pre-retirees navigate the twists and turns of taxation and reach the finish line of financial success.
Pensioners, retirees and pre-retirees
- 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.
If your business operations are conducted through a corporate entity, such as a professional corporation or consulting business, and your spouse holds shares without active involvement in the business, there is an opportunity to distribute dividend income from the corporation if you have reached the age of 65 in the year the dividend is disbursed. It's important to note that this income-splitting privilege extends to situations where your spouse is below the age of 65. Conversely, dividends disbursed to a non-involved spouse under the age of 65 may be subject to taxation at the highest marginal tax rate under the Tax on Split Income (TOSI) regulations.
- 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.
A person reaching the age of 71 in 2025 has the option to contribute to their RRSP by the year’s end, provided that there is available contribution room.
Canada Pension Plan (CPP)
- The maximum contribution to the base CPP for employers and employees in 2025 is $4,034.10. If you are self-employed, the contribution is $8,068.20.
- The maximum earnings on which the CPP applies is $71,300 for the first ceiling in 2025 and $81,200 for the second ceiling (CPP2) in 2024. The second ceiling only applies if you earn more than $71,300 in 2025. This will result in an additional contribution of up to $396 each for employers and employees, and up to $792 for self-employed individuals.
- 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.
- 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.
- 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.
- You will be able to receive your CPP retirement pension without any work interruption.
- 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.
Old Age Security (OAS)
- The value of the OAS benefit for eligible seniors over the age of 65 is approximately $8,700 per year (indexed quarterly for inflation) but is generally reduced where net income exceeds $90,997 and is eliminated where income exceeds $148,451.
- 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) for each month that the benefit is delayed.
- 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 must repay the benefits you have received to date.
- If you are 75 or older, you will receive an automatic 10 per cent increase in your OAS pension. This will provide an additional $870 to full pensioners over the first year and indexed quarterly for inflation going forward.
Did you know?
The maximum RRSP contribution limit is $31,560 for 2024 and $32,490 for 2025. You have until March 3, 2025, to contribute to your RRSP and benefit from the deduction on your 2024 tax return. Contributions made between March 4 and December 31, 2025, will be eligible for deduction on your 2025 tax return.
To contribute the maximum in 2024, 2023 earned income must be at least $175,333. To contribute the maximum in 2025, 2024 earned income must be more than $180,500.
The CPP contribution rates have remained the same at 5.95 per cent for employees and 11.9 per cent for self-employed individuals for the 2025 taxation year, under the first CPP ceiling. The CPP contribution rate is expected to remain the same until 2026. This is an effort by the Canadian Government to ensure that retirees will have sufficient income past retirement in case they were unable to save during their working years.
Top 3 Tax Strategies for Retirement Planning
- Unlock the potential of your RRSP as a powerful retirement planning tool.
- File your personal returns with your spouse using the same accountant to take advantage of pension income splitting opportunities.
- Strategically assess the benefits of delaying OAS payments, aligning with your individual financial goals for a more informed retirement plan.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
Ananth Balasingam
Partner,
Tax
Ananth Balasingam Professional Corporation
Ross Pasceri
Partner,
Tax
Rosario Pasceri Professional Corporation