After the last little ghosts and goblins leave your front door with their haul of candy tonight, we’ll be into the home stretch of the year. This is a great time to revisit your tax planning to ensure nothing gets left to the last minute. Here are some effective year-end strategies for retirees.
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1. Split Your CPP or QPP Benefits
If you’re collecting Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits, consider splitting those benefits with your spouse or common-law partner. This can lead to tax savings. To request this, apply through Service Canada. Remember, if half of your pension benefits are reported on your spouse’s tax return, the same applies to theirs, which could benefit your overall tax situation.
2. Convert Your RRSP to a RRIF
If you turned 71 this year, it’s crucial to transfer your Registered Retirement Savings Plan (RRSP) assets to a Registered Retirement Income Fund (RRIF) before year-end. If making a final RRSP contribution, it must occur before the end of the year. Consider basing your RRIF withdrawals on the age of the younger spouse to minimize annual withdrawals.
3. Take Advantage of the Pension Credit
Taxpayers aged 65 or older can claim a pension credit on up to $2,000 of eligible pension income. By converting enough RRSP assets to your RRIF to generate this income, you could withdraw it with little to no tax, thanks to the pension credit. Also, consider splitting this eligible income with your spouse to optimize tax benefits.
4. Reduce Your Income for Old Age Security (OAS)
If you collect OAS benefits, be mindful that they are reduced if your net income exceeds $90,997 in 2024. To potentially qualify for more benefits, reduce your net income by focusing on capital gains instead of interest. You might also explore claiming deductions for RRSP contributions and other applicable expenses.
5. Contribute to a Spousal RRSP
You can still contribute to a spousal RRSP for your spouse if they are eligible, even if you no longer have an RRSP yourself. This strategy can provide you with a valuable tax deduction for 2024, assuming you have RRSP contribution room available.
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6. Consider an In-Kind Transfer from Your RRIF
If you have a RRIF and need to make a minimum withdrawal, think about transferring an investment from your RRIF that you believe will appreciate in the future. This transfer counts as a taxable withdrawal but can satisfy your minimum requirement while allowing future capital gains to be taxed at a lower rate.
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