There are many unique planning opportunities for seniors that could save significant amounts of tax.
Besides the basic personal exemption that is available to every Canadian, those 65 years old or older on December 31 of the last year, with a net income under certain thresholds, can also claim the age amount, which begins at $6,537 for 2011. This amount is reduced depending on an individual’s net income. To find out exactly how much a senior can claim, they can use the chart on CRA’s Federal Worksheet.
If a senior receives pension income in 2011, they can also claim the federal pension income amount on up to $2,000 of pension income. Any regular pension received from a formal pension plan qualifies, no matter the age of the recipient. After age 65, annuitized RRSPs and RRIF withdrawals also qualify. In all cases, OAS payments and CPP benefits do not qualify for the pension credit.
Seniors may also wish to determine if they qualify for the disability amount of $7,341 for 2011. This credit cannot be claimed without prior qualification, done in advance, by completing CRA Form T2201 “Disability Tax Credit Certificate”. This form must be certified by a medical practitioner and approved by the CRA.
A credit is also available for medical expenses paid in any 12-month period that ended in 2011, provided that the amounts have not already been claimed in 2010. For married or common-law seniors, the lower-income senior should generally claim all of the couple’s medical expenses to maximize this claim.
Further, married or common-law seniors should consider pension-income splitting by completing CRA form T1032, “Joint Election to Split Pension Income”. This tax saving vehicle moves up to 50% of a spouse’s pension income into the hands of the spouse in a lower tax bracket. This may have a secondary benefit of preserving some of the income tested age credits that may have been previously clawed back if net income was too high.
If a senior finds their OAS clawed back in a year because their income was high due to a one-time occurrence such as a large capital gain or severance package, they should file Form T1213 OAS “Request to Reduce Old Age Security Recovery Tax at Source”. Once approved by the CRA, this will improve cash flow by ensuring that the following years OAS payments are not reduced based on an unusually high, non-recurring income.