D. Smith: Taking advantage of the pension income tax credit
The Pension Tax Credit is available to Canadians 55 years of age or older.
You need eligible pension income in order to pull out up to $2,000 tax free.
For those between the age of 55 and 65, you can withdraw up to $2,000 annually from eligible pension income derived from superannuation or pension plans or annuity income arising from the death of your spouse in a RRSP, RRIF or DPSP.
For those over age 65, there are additional sources of pension income: RRIF income, Non registered annuity interest, Foreign Pension income and Life Insurance GIC interest income.
How would you like to receive $2,000 tax free?
Take advantage of simple strategies to turn taxable income into non taxable income.
Talk to a life insurance advisor about Life Insurance GIC’s—the interest rate paid is comparable to financial institutions.
The interest earned from an insurance GIC is considered eligible pension income.
Invest sufficient principal to pay out an annual payment of $2,000 interest income to benefit from the pension credit.
Life insurance GIC’s allow you to name beneficiaries to bypass probate—another huge benefit over traditional bank GICs.
Transfer a portion of your RRSP to a RRIF and withdraw $2,000 each year in RRIF income from age 65 to age 71 (inclusive).
Transfer Locked in Retirement Income (LIRA) to a Life Income Fund (LIF) and then annuitize the proceeds.
Transfer of Unused Credit to a Spouse; if one spouse is earning pension income in excess of $2,000 and the other spouse it not utilizing his or her pension income credit, consider this spousal transfer.
Even if you do not need the income during this 6 year period of time, redeem the $2,000 amount; if you don’t use it you will lose it.
The annual amount of $2,000 is your money being returned to you, but it is tax free and you do not want to miss out on tax free money. You can save thousands of dollars in tax using the pension tax credit.
The Pension Income Tax credit information is available through Canada Revenue Agency (CRA).
Check out the website www.cra-arc.gc.ca.
Line 314 is the Pension Income Amount and you may be able to claim up to $2,000 if you reported eligible pension, superannuation, or annuity payments on line 115, line 116 and/or line 129 of your return.
Amounts such as old age security benefits, Canada Pension Plan benefits, Quebec Pension Plan benefits, death benefits, retiring allowances, excess amounts from a RRIF transferred to an RRSP, another RRIF or annuity, amounts shown in boxes 18, 20, 22, 26, 28, and 34 of your T4RSP slips, and amounts distributed from a retirement compensation arrangement shown on your T4A-RCA slips, do not qualify for the pension income amount.
The pension credit is a non refundable tax credit and can’t be carried forward each year, so make sure you take advantage of the credit in your eligible year.
It is what we get to keep after tax that counts the most—it makes sense for those eligible to take advantage of the pension tax credit.