Blog: Tax Tips 2016: Retirees and Pre-retirees

December 8th, 2016 retirees

From our annual Tax Tips guide, here are the tips and suggestions for retirees and pre-retirees for the year 2016.

Tax Tips

1. Income splitting opportunity
Individuals receiving pension income that qualifies for the pension credit can allocate up to half of this income to their spouse or common-law partner. A determination of the optimal allocation should be considered in tandem with the couple’s continued ability to qualify for Old Age Security payments and certain personal tax credits.

2. An individual’s RRSP must be converted to a Registered Retirement Income Fund (RRIF) or be used to acquire a qualifying annuity by the end of the year in which the individual turns 71.

  • An individual who turns 71 in 2016 can make RRSP contributions by the end of 2016, where contribution room is available.
  • An individual can continue to make a contribution to a spousal RRSP until the end of the year in which his or her spouse turns 71, where contribution room is available.
  • For 2015 and later years, the government has introduced a reduction in the minimum amount that must be withdrawn from an RRIF for a holder who is over the age of 71. The new RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages.

RRSP Quick Facts

  • The maximum RRSP contribution limit is $25,730.
  • The amount of earned income required in 2016 to maximize your 2017 RRSP contribution room is $144,500 (the maximum RRSP
    contribution limit for 2017 is $26,010).
  • The small business deduction limit is $500,000.

Canadian Pension Plan (CPP)

Effective January 1, 2012, there have been some noteworthy changes to the CPP, which include the following:

  1. If you are an employee between the ages of 60 and 65 and you are still working, you must continue to contribute to the CPP even if you are already receiving a CPP retirement pension.
  2. If you are an employee between the ages of 65 and 70 and you are still working, you can choose to continue to contribute to the CPP or you can opt out of making these contributions.
  3. Any contributions you make to the CPP, regardless of your age, will increase your CPP benefits even if you are already receiving a CPP pension benefit.
  4. You will be able to receive your CPP retirement pension without any work interruption.
  5. Your employer must match your CPP contributions in each of the scenarios described in (1) and (2) above. Your employer must make these contributions regardless of whether you are already receiving a CPP pension benefit.

Old Age Security (OAS)

  1. The value of the Old Age Security (OAS) benefit for eligible seniors over the age of 65 is approximately $6,880 per year (indexed quarterly for inflation) but is generally reduced where net income exceeds $73,756 and is completely eliminated where income exceeds $119,512.
  2. Beginning July 1, 2013, you may choose to delay receipt of your OAS for up to five years beyond the normal benefit start date of 65, in exchange for an increased monthly pension of 0.6% (up to a total of 36% annually) for each month that the benefit is delayed.
  3. If you have already started receiving OAS payments but would like to benefit from the deferral, you can write to Service Canada to request a cancellation of your OAS pension, provided you have been receiving the pension benefits for less than 6 months, but you will have to repay the benefits you have received to date.

Did you know?

The Ontario government has abandoned the proposed “Ontario Retirement Pension Plan” in exchange for the new CPP regime. Beginning in 2019, the CPP contribution rates will be gradually increased from the current 4.95% to 5.95% by 2025. This is an effort by Ontario to ensure that retirees will have sufficient income past retirement in case they were unable to save during their working years.

Our annual Tax Tips can assist you in your tax planning presenting some quick ideas and strategies for you to employ. Please take the time to review your 2016 tax situation and call us for specific recommendations tailored to meet your needs.  We will be pleased to work with you on these and other tax-savings ideas.

Click here to download a full copy of the Tax Tips 2016 Guide (PDF).

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