Tax Considerations For Seniors
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Once you reach the age of 65, you become eligible for a few tax benefits that weren’t available to you when you were younger. Once seniors retire, their income decreases, especially if they didn’t have a strong pension plan from their employer. Along with tax benefits available to all Canadians, tax credits for senior citizens make a huge difference in allowing seniors to save more money on their taxes.
Check out how taxes are calculated in Canada.
Federal Tax Credits and Income For Seniors
There is a wide range of tax credits seniors are eligible to apply for:
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) Benefits
Most Canadians contribute to the Canada Pension Plan throughout their working life. The CPP is a monthly benefit or credit that replaces a portion of your income for you or your family when you retire. You must be at least 60 years old and have made a minimum of one valid contribution to the CPP to qualify for this benefit. Although the amount of money you can earn depends on a variety of factors, the average monthly income for Canadians receiving CPP is $710.41. In the event of you needing to take out a loan, you can actually use your CPP to help you do so.
To get a better idea about what you may be eligible for through the CPP, check out the Canadian Retirement Income Calculator. Finally, it’s important to note that CPP income is never automatic – you must apply to receive it.
The Quebec Pension Plan (QPP) gives citizens living and working in Quebec basic financial protection if they retire, die, or develop a disability. You can apply to QPP only if you live in Quebec, or if the last province you lived in was Quebec.
Find out what happens to your debt when you die.
Retiring allowances are sometimes included as a portion of a severance package, which is given to an employee upon termination of their employment. Retiring allowances can include the following:
- Payments for unused sick credits upon termination
- Payments given to individuals upon the termination of employment or office, including damages if there is evidence of wrongful dismissal
Calculated based on the length of your service to the organization, a retirement allowance may also include additional benefits, payments and incentives. Retiring Allowances can be partially transferred to RRSPs, allowing some of them to be deferred from taxes.
Worried about retirement? Learn how to prepare for retirement.
Disability Tax Credit
Citizens are eligible for the disability tax credit if a qualified person (usually a medical doctor) declares that you have a severe mental or physical impairment that significantly impedes their ability to perform a basic activity of daily living. Some examples of restricted activities due to disability include speaking walking, hearing, eating, dressing, and more. The general amount of money you can receive under this credit is $8,576, as of 2020.
Medical Expense Tax Credit
The medical expense tax credit, or METC, is meant for individuals who pay significant amounts of money in medical expenses for themselves, their spouses, or dependents. Some examples of medical expenses that qualify include dental services, nursing home services, ambulance services, and travel expenses. There are also certain devices whose cost qualifies, including hearing aids, dentures, prescription drugs, orthopedic shoes, gluten-free foods, wigs, and more.
Check out this guide on tax loans in Canada.
Home Accessibility Tax Credit (HATC)
The Home Accessibility tax credit is a credit given for expenses incurred in home renovations or alterations that allow an individual to gain access to or be mobile in their home or reduce the risk of harm to the individual within their home. Some examples of qualifying expenses include the costs of renovations to allow for grab bars, handrails, walk-in tubs, widening doorways, and lowering cabinets.
Learn how to use the equity in your home to cover home renovation expenses.
The credit allows you to claim up to $10,000 in expenses, and usually results in a non-refundable credit of 1,500 per year. Any home work done by professionals such as plumbers, architects, contractors, and more are eligible expenses, as are building materials, fixtures, permits and equipment rentals if you do the work yourself.
Check out how you can finance home renovations for your ageing parents.
Old Age Security (OAS) pension
The Old Age Security Pension is given to any Canadian over the age of 65 years old. A taxable benefit, this pension averages to about $614.14 every month, and is calculated depending on how long you lived in Canada.
Guaranteed Income Supplement
The guaranteed income supplement is given to some Canadians who also receive the old age security pension if their income is below a certain threshold. For example, if a citizen’s income is below $18,624 as a single person, they are eligible for this supplement. This supplement is also given if a citizen’s income plus the income of their spouse or partner is below $24,576. For more information about the guaranteed income supplement and eligibility, visit the CRA’s website.
Allowance For The Survivor
This benefit is available to citizens between the ages of 60 and 64 with low income, and whose spouse has died. This tax credit ends once you turn 65, and is replaced with the Old Age Security Pension.
Check out these tax tips for low income earners.
Provincial Tax Credits For Seniors
In addition to the federal tax benefits described in the section above, there are also some province-specific tax credits available to seniors.
Ontario Trillium Benefits (OTB) – Ontario
Only available to citizens in Ontario, the Ontario Trillium Benefit combines three tax credits to assist in paying for energy costs and sales and property tax. To apply, you need to be eligible for at least one of the three combined credits:
- Northern Ontario Energy Credit
- Ontario Energy and Property Tax Credit
- Ontario Sales Tax Credit
Low Income Grant Supplements For Seniors- British Columbia
Available to British Columbia citizens, the low-income grant supplement allows you to supplement your homeowner grant if it’s been reduced or eliminated altogether. Visit the Government of British Columbia’s website for more information.
70% grant of your rent costs – Quebec
For seniors in Quebec, the government offers a basic amount of money to help cover the costs of renting in a private senior’s residence. If you are 70 years of age or older, you can receive up to a 70% grant of your rent costs. Dependent seniors can receive up to 80%.
Check out these common mistakes renters make.
Tips on Reducing, Deducting, or Deferring Your Taxes
Even as a senior, your income from tax credits and benefits is taxable. Here are some helpful tips for reducing the amount you pay in taxes.
Registered Retirement Savings Plan (RRSP)
Usually created in preparation for retirement, income from RRSPs is exempt from taxes as long as it remains in the fund. To avoid higher tax brackets, make sure you limit how much you take out each year. Try your best to rely on income received through your employer’s pension plan, as well as Canada and provincial tax credits to avoid taking out more money from your RRSP each month, and in turn to avoid paying more taxes on it.
Check out how you can get a loan using your RRSP.
Pension Income Splitting
Pension income splitting can help you save on the amount of income tax you need to pay. Upon meeting a few requirements, you might be eligible to split a maximum of 50% of your income with your spouse or partner, and thus reduce the amount of income tax you pay each year.
Carrying Charges and Interest Expense
Remember to claim all carrying charges and interest expenses that you had to pay in order to earn any income from your investments. This includes expenses incurred for investment advice, as well as for paying anyone to manage your investments.
Retirement can be a stressful time for seniors, as it often results in a decrease in income. Make sure you are well informed on all of the available tax benefits to maximize on your income and on deductions for your income tax.
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