With tax season hitting full stride, and our recent focus on retirement planning, I thought a look at the most used tax breaks for seniors and retirees might be just what the accountant ordered.
Quick Note: The phrase “tax break for seniors” isn’t a technical term. Instead, it refers to a range of tax credits for seniors, tax deductions for seniors, and various ways that seniors can reduce their taxable income in Canada.
Second Quick Note: A common criticism when it comes to tax credits for seniors in Canada is that it is very heavily skewed towards couples. While this may or may not be fair, depending on your viewpoint, it comes from the bigger debate on if we should tax residents as individuals or as family units.
Many of the tax breaks for seniors are really just a way of equalizing the taxes owed between both spouses – essentially creating a household taxation unit. Fans of family-unit style taxation might make the statement that there isn’t an “added benefit” to having a spouse, it’s simply that they are now not being penalized for one spouse earning more than the other.
1) Eligible Pension Splitting
One of the easiest ways to lower your total taxable income as a couple is to split your pension. The idea here is that if one member of a couple (you have to reside in Canada and live together to be eligible) earns more than the other – they may be in a higher marginal tax bracket.
Consequently, by “shifting” some of your pension income over to a lower spouse, you will lower your overall tax bill. Income from a RRSP/RRIF, LIF, most life annuities, and private benefit pension plans are all eligible for pension splitting.
You can transfer up to half of your pension income to your spouse using the Form T1032.
2) Sharing CPP
Payments from the Canadian Pension Plan (CPP) and Old Age Security (OAS) aren’t eligible for pension splitting in the same manner that we discussed in point one. But while OAS payments aren’t eligible for income splitting at all, CPP payments are subject to their own unique splitting formula.
Again, like the pension splitting we described above, CPP splitting works to reduce the overall tax rate of a couple by “shifting” the income from a higher-earning spouse to a lower-earning spouse.
CPP splitting is determined by using half of the number of years that you lived together as a percentage of your CPP contributory period.
3) Spousal RRSPs
A spousal RRSP allows a relatively high-earning spouse to get the high tax deduction by contributing to the RRSP of their spouse.
This becomes an even more attractive option for high-earning folks over the age of 71. Even though they can no longer get a tax deduction by contributing to their own RRSP, as long as their spouse is under the age of 71, they can still use a spousal RRSP to reduce their taxable income.
Spousal RRSPs are a great tool anytime one spouse has very little income and is in the lowest tax brackets.
4) Pension Tax Credit
Canada is willing to give you a $2,000 tax credit just for receiving a pension!
Any private defined benefit pension, annuities, or RRIF payment qualifies for the plan. In fact, any eligible income on line 11,500, 11,600 or 12,900 of your tax return allows you to claim the pension tax credit.
Quick Tip: Many Canadians wait until age 65 to get this tax credit, but if you have a defined benefit pension plan, then you can access this plan before age 65. It’s worth noting that the Saskatchewan Pension Plan (SPP) is open for anyone to contribute to and allows you to access this pension tax credit earlier than age 65.
5) The Age Amount Tax Credit
The federal government is also going to give you a tax credit if you’re over age 65. The tax credit was for $7,898 in 2022 and will go up with inflation.
However, you can only get the full benefit of this tax credit if you have a taxable income below $39,826 (in 2022 – it will go up with inflation as well). After that threshold, it will be clawed back until you hit about $92,000 per year in taxable income and receive no benefit.
If you are already paying very little or no tax and can’t benefit from the non-refundable tax credit, you can transfer it to your spouse.
6) Save Your Minimum RRIF/Withdrawal By Using the Age of Your Younger Spouse
Some retirees (usually those with substantial non-registered portfolios in addition to an RRSP/RRIF) will see some advantage in keeping their RRSP intact as long as possible. These seniors want to avoid higher minimum withdrawals from siphoning away their RRSP.
If this situation describes you, then you and your younger spouse can opt to use their younger age to calculate the minimum withdrawal percentage that applies.
7) Making the Best Use of the Medical Expenses Tax Credit
The CRA allows you to use eligible medical expenses to generate a non-refundable tax credit. To qualify for this tax credit, your household’s eligible medical expenses must add up to the lesser of:
- 3% of your net income
- Or – $2,635
These eligible expenses go on lines 33099 and 33199 of your tax return and can include a wide variety of expenses as seen here.
A lot of people don’t think that they’ll have thousands of dollars of eligible expenses, but remember that these expenses can include:
- Car mileage and parking (if there were no equivalent medical services near your home).
- If you travel more than 80km, you can even claim meals and accommodations for both you and your travel companion as long as you get a note from your physician that says you were unable to travel alone.
- Prescription drugs.
- Premiums for private healthcare plans.
- Non-cosmetic dental work.
- Hearing aids.
- Laser eye surgery
- Rehab therapy.
- Many, many more as seen here.
One other unique tip for claiming the medical expenses tax credit is that if you don’t quite meet that 3% minimum one year, you can “carry” those expenses forward to the next year as long as it is a continuous 12-month period that ends during the most recent calendar tax year. Also – make sure to use the tax credit for the lower-earning spouse’s tax return, as 3% of the lower taxable income number is obviously a lower threshold.
8) Disability Tax Credit
If you are older than 65 and have a disability you can apply for the disability tax credit using Form T2201.
To qualify, you must have a medical practitioner certify that you have “a serious and prolonged physical or mental impairment”.
Each province has its own DTC, as well as the federal government.
The details of the DTC are vast and full of nuances. I recommend checking with your accountant after viewing this website to see if you qualify.
If you cannot use the full amount of your DTC it can be transferred to a spouse in order to reduce their taxes owing.
9) Attendant Care Credit
If you qualify for the DTC, you may be eligible to include some of the costs of an attendant that is needed to help you complete day-to-day activities.
10) Home Accessibility Tax Credit
Many seniors find that as they age they need to make renovations to their house in order to make it more accessible. Widening doorways for wheelchair passage, building a wheelchair ramp or lift, installing grip bars in your shower, are all eligible for the $20,000 Home Accessibility Tax Credit (HATC). For more information look here.
11) A Spousal Prescribed Rate Loan
This is kind of a niche strategy that really only pertains to couples where one spouse has a large non-registered portfolio, and the other spouse has very little taxable income for the year.
The idea is that by loaning your spouse money at the prescribed interest rate (currently 5%) you can shift investment taxation responsibility to the lower spouse and lower your overall taxation on non-registered investment returns. The strategy is generally much more attractive at the lower loan rates of yesteryear.
12) GST/HST & Climate Action Incentive Payments
These tax breaks aren’t unique to seniors and are automatically calculated when you file your taxes. No need to worry about them – just wanted to make you aware that they will be automatically applied to your taxation as long as you file your taxes.
13) The Canada Caregiver Credit (CCC)
As more and more young seniors are responsible for directly looking after their elderly parents, and seniors of all ages are often left to care for a dependent spouse, the Canada Caregiver Credit has become more and more important. It is a non-refundable tax credit that was created to replace three older tax credits: The Caregiver Amount, the Amount for Infirm Dependants, and the Family Caregiver Amount.
You are eligible for the CCC if you support a dependent person from the following categories with a physical or mental impairment.
- Your or your spouse’s child or grandchild
- Your or your spouse’s parent, grandparent, brother, sister, uncle, aunt, niece, or nephew
An individual is considered dependent on you if they rely on you to provide them with some of all of the basic necessities of life such as good, shelter, and clothing. More details are available here.
Provincial Tax Breaks for Seniors in Canada
All of that the tax breaks for seniors listed above will save you money on your federal taxes – but there is a whole secondary level of taxation at the provincial level that you can garner tax breaks for as well. There are too many to list here, but just know that many of the same tax credits and deductions above have a provincial equivalent as well. In addition there are unique provincial tax break examples such as:
- The Low Income Grant Supplement in BC to reduce property taxes.
- The BC Home Renovation Tax Credit
- Quebec’s Independent Living Tax Credit for seniors
- Quebec’s Tax Credit for Seniors Activities
- Ontario’s Senior Care and Home Tax Credit
- The Alberta Seniors Benefit and Accommodation Benefit
…and many more.
Make sure to check if there are any provincial-level tax credits or tax deductions for seniors that you can take advantage of before you hit “send” on your tax return this year.
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