Crowe Soberman’s annual Tax Tips Guide is here to assist in your tax planning, presenting quick suggestions and strategies for you to employ.
Pensioners, retirees and pre-retirees
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. If you carry on business through a corporation (for example, a professional corporation or consulting business) and your spouse owns shares but is not involved in the business, you can split dividend income of the corporation with them as long as you have attained the age of 65 years during the year the dividend is paid. This income splitting is permitted even though your spouse themselves may be under the age of 65. In contrast, dividends paid when you are under the age of 65 to your spouse who is not involved in the business, will attract tax at the highest marginal tax rate under the Tax on Split Income (“TOSI”) rules.
3. An individual’s Registered Retirement Savings Plan (“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 2022 can make RRSP contributions by the end of 2022, to the extent contribution room is available.
An individual can continue to contribute to a spousal RRSP until the end of the year in which his or her spouse turns 71, to the extent contribution room is available.
For 2015 and later years, the Government introduced a reduction in the minimum amount that must be withdrawn from a RRIF for a holder who is over the age of 71. The lower RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages.
2. If you carry on business through a corporation (for example, a professional corporation or consulting business) and your spouse owns shares but is not involved in the business, you can split dividend income of the corporation with them as long as you have attained the age of 65 years during the year the dividend is paid. This income splitting is permitted even though your spouse themselves may be under the age of 65. In contrast, dividends paid when you are under the age of 65 to your spouse who is not involved in the business, will attract tax at the highest marginal tax rate under the Tax on Split Income (“TOSI”) rules.
3. An individual’s Registered Retirement Savings Plan (“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 2022 can make RRSP contributions by the end of 2022, to the extent contribution room is available.
An individual can continue to contribute to a spousal RRSP until the end of the year in which his or her spouse turns 71, to the extent contribution room is available.
For 2015 and later years, the Government introduced a reduction in the minimum amount that must be withdrawn from a RRIF for a holder who is over the age of 71. The lower RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages.
Canadian Pension Plan ("CPP")
Below are some noteworthy highlights of the CPP:
1. The maximum contribution to the base CPP for employers and employees in 2022 is $3,432. If you are self-employed, the contribution is $6,864.
2. The maximum earnings on which the CPP applies is $63,700 for 2022.
3. If you are an actively working employee between the ages of 60 and 65, you must continue to contribute to the CPP even if you are already receiving a CPP retirement pension.
4. If you are an actively working employee between the ages of 65 and 70, you can choose to continue to contribute to the CPP or you can opt out of making these contributions.
5. 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.
6. You will be able to receive your CPP retirement pension without any work interruption.
7. Your employer must match your CPP contributions in each of the scenarios described in (3) and (4) above. Your employer must make these contributions regardless of whether you are already receiving a CPP pension benefit.
1. The maximum contribution to the base CPP for employers and employees in 2022 is $3,432. If you are self-employed, the contribution is $6,864.
2. The maximum earnings on which the CPP applies is $63,700 for 2022.
3. If you are an actively working employee between the ages of 60 and 65, you must continue to contribute to the CPP even if you are already receiving a CPP retirement pension.
4. If you are an actively working employee between the ages of 65 and 70, you can choose to continue to contribute to the CPP or you can opt out of making these contributions.
5. 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.
6. You will be able to receive your CPP retirement pension without any work interruption.
7. Your employer must match your CPP contributions in each of the scenarios described in (3) and (4) 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 $7,623 per year (indexed quarterly for inflation) but is generally reduced where net income exceeds $79,845 and is eliminated where income exceeds $129,757.
2. Canada’s Minister of Seniors announced a $500 one-time taxable payment for older seniors born on or before June 30, 1947 and who are eligible for OAS pension in June 2021. You do not have to apply for this payment if you are eligible and you have already applied for the OAS pension as you will automatically receive the payment. However, if you are eligible and have not applied for the OAS pension you must submit your application no later than May 31, 2022 in order to receive this one-time payment.
3. Individuals who retired on or after July 1, 2013 may choose to delay receipt of their OAS for up to five years beyond the normal benefit start date of 65, in exchange for an increased monthly pension of 0.6 per cent (up to a total of 36 per cent annually) for each month that the benefit is delayed.
4. 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 six months, but you will have to repay the benefits you have received to date.
5. The 2021 budget announced a permanent 10 per cent increase in OAS to be implemented in July 2022 for seniors aged 75 and older. This will provide an additional $766 to full pensioners over the first year and indexed to inflation going forward.
2. Canada’s Minister of Seniors announced a $500 one-time taxable payment for older seniors born on or before June 30, 1947 and who are eligible for OAS pension in June 2021. You do not have to apply for this payment if you are eligible and you have already applied for the OAS pension as you will automatically receive the payment. However, if you are eligible and have not applied for the OAS pension you must submit your application no later than May 31, 2022 in order to receive this one-time payment.
3. Individuals who retired on or after July 1, 2013 may choose to delay receipt of their OAS for up to five years beyond the normal benefit start date of 65, in exchange for an increased monthly pension of 0.6 per cent (up to a total of 36 per cent annually) for each month that the benefit is delayed.
4. 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 six months, but you will have to repay the benefits you have received to date.
5. The 2021 budget announced a permanent 10 per cent increase in OAS to be implemented in July 2022 for seniors aged 75 and older. This will provide an additional $766 to full pensioners over the first year and indexed to inflation going forward.
Did you know?
The maximum RRSP contribution limit is $27,830 for 2021 and $29,210 for 2022. You have until March 1, 2022 to contribute to your RRSP and benefit from the deduction in your 2021 tax return. Contributions made between March 2 and December 31, 2022, will be eligible for deduction on your 2022 tax return.
To contribute the maximum in 2021, 2020 earned income must be at least $154,611. To contribute the maximum in 2022, 2021 earned income must be more than $162,278.
The CPP contribution rates have increased as of 2019, with the current contribution rate set at 5.7 per cent for employees and 11.4 per cent for self-employed individuals for the 2022 taxation year. The CPP contribution rate will continue to increase until 2025 to 5.95 per cent and 11.9 per cent for employees and self-employed individuals, respectively. This is an effort by the Canadian government to ensure that retirees will have sufficient income past retirement in case they were unable to save during their working years.
To contribute the maximum in 2021, 2020 earned income must be at least $154,611. To contribute the maximum in 2022, 2021 earned income must be more than $162,278.
The CPP contribution rates have increased as of 2019, with the current contribution rate set at 5.7 per cent for employees and 11.4 per cent for self-employed individuals for the 2022 taxation year. The CPP contribution rate will continue to increase until 2025 to 5.95 per cent and 11.9 per cent for employees and self-employed individuals, respectively. This is an effort by the Canadian government to ensure that retirees will have sufficient income past retirement in case they were unable to save during their working years.
Adam Scherer
Managing Partner,
(he/him)
Adam Scherer Professional Corporation