Jamie Golombek, Financial Post Published: Thursday, April 01, 2010
Seniors have a number of unique tax planning opportunities that, if applicable, could save significant amounts of tax, both when filing their 2009 return and for years to come.
First of all, they need to claim all non-refundable tax credits. The basic personal amount, available to every Canadian of any age, is $10,320 in 2009. Those 65 years old or older on Dec. 31 last year, with a net income under $75,032, may also claim the age amount.
Note, however, that the age amount, which begins at $6,408, is reduced when net income is more than $32,312. To find out exactly how much seniors can claim, they can use the chart on the CRA’s Federal Worksheet.
If seniors received pension income in 2009, they can claim the federal pension income amount on up to $2,000 of pension income.
What qualifies as pension income? Any regular pension received from a formal pension plan qualifies, no matter the age of the recipient. Once over 65, however, annuitized RRSPs and RRIF withdrawals also qualify. In all cases, Old Age Security (OAS) payments and Canada/Quebec Pension Plan benefits do not qualify for the pension credit.
Seniors may also wish to investigate whether they qualify for the disability amount of $7,196. This credit can’t be claimed without prior qualification. That is done in advance by completing CRA Form T2201 “Disability Tax Credit Certificate,” which must be certified by a qualified medical practitioner and approved by the CRA.
A credit is also available for medical expenses paid in any 12-month period that ended in 2009, provided they haven’t already been claimed in 2008. For the 2009 tax year, medical expenses can only be claimed if they are more than 3% of net income or $2,011, whichever is less. As a result, for married or common-law seniors, the lower-income senior should generally claim all of the couple’s medical expenses.
Married or common-law couples might want to consider pension-income splitting by completing CRA Form T1032, “Joint Election to Split Pension Income.” This has the primary benefit of saving income tax by moving up to 50% of a spouse’s pension income into the hands of the spouse in a lower tax bracket. It may also result in secondary benefits by preserving some of the income-tested age credit, even allowing the return of OAS benefits that may have been clawed back if net income was over $66,335 in 2009.
And finally, while we’re on the subject of OAS, if readers find their OAS clawed back in 2009 because their income was high due to a one-time occurrence such as a large capital gain or a severance package, consider filing 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 2010 OAS payments are not reduced based on an unusually high, non-recurring 2009 income.
– Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax and estate planning, with CIBC Private Wealth Management in Toronto.