Year-End Tax Planning Tips for Seniors

Here are some of the year-end tax planning ideas an individual senior might want to considered.

Apply for Old Age Security (OAS) Benefits:

If you turned age 65 in 2019, you may wish to apply for OAS benefits. If you’ll reach age 65 in 2020, then you can apply for OAS up to 12 months before your 65th birthday.

Also, you may voluntarily defer the start of your OAS pension benefit for up to five years (60 months) after the month you turn age 65 and receive a higher annual pension than if the benefit began at age 65. If you would otherwise be subject to a full clawback of your OAS benefits, deferring receipt of the payments may be beneficial, with little attached risk or cost. The OAS clawback applies if your net income for the year exceeds a certain annual threshold. For 2019, this threshold is $77,580. The amount of the clawback is equal to the lesser of your OAS payments or 15% of the amount by which your net income for the year exceeds the threshold amount. For 2019, the full amount of the OAS benefit is eliminated when your net income reaches $126,058.

Note that if you choose to defer receipt of your OAS pension, you will not be eligible for the Guaranteed Income Supplement (GIS), and your spouse or common-law partner (Partner) will not be eligible for the Allowance benefit (i.e., generally, a benefit available to a Partner, aged 60 to 64, of a GIS recipient) for the period that you are delaying your OAS pension.

Apply for Canada Pension Plan (CPP) Benefits

If you turned age 60 in 2019, you are eligible to apply to receive CPP benefits. However, if you apply for CPP benefits before age 65, you should know that there is a reduction in your benefit payment. In 2019, an individual who takes CPP retirement benefit at the earliest possible moment (i.e., age 60) will lose 36% (0.6% per month) of the entitlement. On the other hand, an individual who defers his/her CPP retirement benefit to the latest moment (i.e., age 70) will increase the pension entitlement. In 2019, the late pension augmentation is 0.7% per month for a total increase of 42%.

Service Canada suggests that individuals should apply for their CPP benefits six months before the time they wish to start receiving CPP benefit payments.

Contribute to Registered Retirement Savings Plan (RRSP):

If you are 71 in 2019, consider making a final contribution to your registered retirement savings plan (RRSP). If you turned age 71 in 2019, you may wish to make a final contribution to your RRSP by December 31, 2019. If you have unused RRSP contribution room remaining, making a final contribution can be beneficial, as the amount of the contribution can be deducted against income generated in 2019, thereby reducing your tax liability in 2019.

Allocate pension income to your Partner:

Since 2007, Partners have been entitled to an income splitting opportunity that allows them to allocate up to one half of their income that qualifies for the existing pension income tax credit to their Partner. In this case, you may want to review your 2019 pension income (including income from a registered retirement income fund if you are aged of 65 or older) and assess the opportunity to allocate up to 50% of your eligible pension income to your Partner. This income splitting opportunity may provide you with greater after-tax income from your retirement plans.