By Kevin Press, BrighterLife.ca
October 23, 2013
It’s not just for seniors. If you report pension and/or annuity income in your tax return, you may be eligible to claim up to a $2,000 tax credit.
It’s not every day that a Canadian government doubles a tax credit. But that’s exactly what happened in the 2006 federal budget, when the pension income tax credit increased from $1,000 to $2,000.
According to figures from the Canada Revenue Agency, the credit is widely used. For the 2009 tax year, 4.6 million Canadians over the age of 65 filed tax returns; and 3.1 million claimed the pension income tax credit. Don’t be fooled by its name though, this isn’t just for seniors. Almost 1.2 million Canadians were under 65 when they claimed the credit for 2009. And many maximized the credit — the average claim was for $1,900 worth of pension or qualifying pension income.
Here’s how it works.
You can claim as much as $2,000 worth of eligible annuity and/or pension income. What qualifies? It’s a long list.
For those 65 or older, eligible income includes:
- Life annuity payments from a pension plan (including the Saskatchewan Pension Plan) or superannuation plan. Payments from a registered retirement income fund, including life income funds and locked-in retirement income funds. Annuity payments from a registered retirement savings plan, a deferred profit sharing plan or a pooled registered pension plan. Regular annuities. Periodic payments from a defined contribution pension plan.
For those under 65 (for the whole tax year) eligible income includes:
- Life annuity payments from a pension plan (including the Saskatchewan
Pension Plan) or superannuation plan. Payments from a registered retirement income fund, pooled registered pension plan or defined contribution pension plan received as the result of a spouse’s or common-law partner’s death. Annuity payments from a registered retirement savings plan or deferred profit sharing plan received as the result of a spouse’s or common-law partner’s death.
If a pension or superannuation plan is amended or terminated, then these payments also qualify for the tax credit.
Not all pension income is eligible though. For example, if you receive pension income from another country that has a tax treaty with Canada, the credit can’t be claimed for that income if it is tax free because of the treaty. Similarly, old age security, Canada Pension Plan, Quebec Pension Plan and death benefits are ineligible. So are retiring allowances, registered retirement savings plan withdrawals (besides annuity payments) and salary deferral, retirement compensation, employee benefit plan and employee trust payments.
For those looking to further utilize the pension income tax credit, eligible pension income can be split with your spouse or common-law partner. As a result, up to $4,000 of eligible pension income can be effectively earned free of tax between you both.
Needless to say, this is an area where you’re well advised to consult with your financial advisor and/or accountant. If you take advantage of the credit, you can save thousands in taxes over your lifetime. But it is a non-refundable tax credit, which means you can’t carry the credit forward if you fail to use it. (You can however transfer unused amounts to your spouse or common-law partner.) Don’t miss out.