As I mentioned in the Old Age Security (OAS) clawback article, a reader requested an explanation of the various seniors benefits in Canada. While I’ve explained some income sources (oas and gis), lets get into a couple popular tax credits.
Age Amount Tax Credit
This tax credit, as the name suggest, is for seniors age 65 and older within an income threshold. Like Old Age Security and Guaranteed Income Supplement, the Age Amount Tax Credit is reduced as income increases past the pre-determined limit.
- In 2010, a non-refundable tax credit of $6,446 (worth about $967 federally) is offered to seniors who make $32,506 or less.
- The Age Amount Tax Credit is reduced by 15% for every dollar above $32,506 until it is completely eliminated when income reaches $75,480.
- This tax credit is also matched by a provincial portion which varies. For a complete table of this tax credit calculated by province, standard life has a useful table to reference.
For example, a 65 year old senior in Ontario making $32,000 per year, can reduce his/her tax owing by $1,187 (provincial and federal combined). Or what if the a senior makes $50,000 income for the year? The age amount tax credit (federal) would be clawed back by ($50,000 – $32,506=$17,494 * 15%) $2624.10. This results in the tax credit of $6446-2624.10 = $3822 (worth about $573.30 federally).
Another thing to note is that the dividend gross up (45%) from stocks held in a non-registered account is counted as income when determining the age amount (similar to the OAS clawback). Here is a comprehensive article on how clawbacks work in the big picture.
Pension Income Amount Tax Credit
This tax credit is a bit more simple than the age amount. The pension amount tax credit offers up to a $2,000 non-refundable tax credit (worth about $300) to seniors who collect private pension (RRIF counts) or annuity payments. Qualifying pensions do not include Canada Pension Plan (CPP), Old Age Security (OAS), or Guaranteed Income Supplement (GIS).
For example, if a retiree is collecting benefits of $1,500 per year from a defined benefit pension, then he/she can claim $1500 under the pension income amount tax credit and be awarded a $225 (1500 * 15%) reduction in taxes owing. If he/she somehow increases his pension income (RRIF withdrawals etc) to greater than $2,000 per year, then he/she can claim the full amount.
One advantage of getting a private pension is the ability to split the pension with your spouse. Not only will that help reduce tax, the spouse would be eligible for the pension tax credit (according to George Vandebeek, tax partner at BDO Canada).
A short article of a couple of the more common tax credits available to seniors. There may be more articles about retirement and retirement planning coming up as I have family members entering the retirement scene. Are there any other tax credits for seniors that I should be looking into?
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