A Recipe for Tax Savings: Five Sometimes Overlooked Ways to Save On Taxes
Ray Hoger | Chair, Pension & Financial Wellness Committee, ARTA
One of my favourite financial websites is Boomer&Echo, which provides financial information for all ages and stages. A guest post in February 2023 by Mark McGrath, a financial advisor in British Columbia, provided ways to save taxes in retirement. Here are five of his suggestions.
The easiest way to save on taxes is to claim the pension income tax credit, assuming you have a pension income and are over the age of 65 (or under 65 and receive an annuity because of the death of your spouse). Pension income excludes your Registered Retirement Income Fund (RRIF), foreign source pension income, Canada Pension Plan (CPP) benefits, Old Age Security (OAS), and retiring allowances. Your accountant or tax professional can provide the specifics.
If you have a Registered Retirement Savings Plan (RRSP), you will convert it to a RRIF by the age of 71. You must take out a minimum amount from the RRIF each year: four per cent of its value at age 65 but 5.4 per cent at age 72 (the percentage increases until age 95). You can use the younger spouse’s age to calculate the minimum withdrawal to extend the life of the RRIF, but once you select the age for withdrawal purposes, you can’t change it.
Pension income splitting with a spouse is another area of potential savings. If one spouse has a significantly higher pension than the other, you can move up to fifty per cent of eligible pension income to the lower income spouse. (The split amount can be different every year.)
CPP benefits can’t be split but they can be shared. To qualify, you must be living with your spouse and one of you must be receiving CPP. If only one of you contributed to CPP, you can share one pension. If you both contributed to CPP, you both may receive a share of both pensions, based on the number of months you lived together during your joint contributory period. This is not a simple tax form adjustment, and the information is deeply buried in the Canada.ca website.
Apply to share CPP benefits using your My Service Canada Account or by sending certified copies of the CPP Sharing form to Service Canada. If you are eligible, the sharing begins. The amounts revert to previous values on request, divorce, or the death of one spouse.
Either spouse may claim the family’s medical expenses. (Remember, ARTA benefit plan premiums are considered a medical expense.) You can claim the total eligible expenses minus the lesser of $2,479 (for 2022) or three per cent of your net income. The spouse with the lower net income should claim all medical expenses, since three per cent of a lesser amount would result in a larger tax credit.
Seek professional advice from a tax specialist to legally minimize your taxes. Some of these ideas might be a surprise, but a tax professional can tell you if they apply to your situation.
Ray Hoger hurries to remind you that he is a retired professional teacher with an interest in financial issues, not a financial expert!