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. That’s a good time to revisit your tax planning to ensure nothing gets left to the last minute. Today, I want to share some year-end strategies for retirees.
1. Split your CPP or QPP benefits. If you’re collecting CPP or QPP benefits, you could save tax by splitting those benefits with your spouse or common-law partner. You have to request this by applying through Service Canada (go to www.canada.ca and type “CPP sharing” in the search field). The arrangement is reciprocal, so if half of your pension benefits are reported on your spouse’s tax return, then half of his or hers will be reported on yours. But if you’re each entitled to meaningfully different amounts, this could save you tax as a couple.
2. Convert your RRSP to a RRIF. If you turned 71 this year, you should consider transferring your RRSP assets to a registered retirement income fund (RRIF) before the end of the year. If you’re going to make a final RRSP contribution, it needs to happen before year-end (not during the first 60 days of 2025, as is normally the case). Also, you’d be wise to base the amount of your RRIF withdrawals on the age of the younger spouse to reduce the minimum required annual withdrawal. And, consider making a 2025 RRSP contribution to your RRSP this year before winding up your plan if you’ve had earned income this year. You’ll pay a penalty for any overcontribution in excess of $2,000, but you’ll be able to claim a deduction in 2025 for that overcontribution to the extent your earned income for 2024 creates contribution room on Jan. 1, 2025 (you’ll be entitled to contribution room even though your RRSP will be gone by the end of this year).
3. Take advantage of the pension credit. Every taxpayer who is age 65 or older can claim a pension credit on up to $2,000 of eligible pension income. You can create eligible pension income by converting enough RRSP assets to a RRIF to pay out $2,000 annually from the RRIF. Do this before year-end to receive that income from your RRIF with little or no tax thanks to the pension credit. You can also help your spouse or common-law partner use their pension credit by reporting up to one half of your eligible pension income on their tax return (increasing the amount you can withdraw from your RRIF with no or little tax owing).
4. Reduce your income for OAS. If you’re collecting Old Age Security benefits you might be aware that those benefits are reduced once your net income exceeds $90,997 in 2024. If you can reduce your net income, you could be entitled to more benefits. You can keep your income lower by focusing on earning capital gains rather than interest from your portfolio (but consider the risk you’re taking on with this investment approach). If you have a corporation that owes you money, take a repayment of that shareholder loan to meet cash needs since those amounts aren’t taxable. Also, consider claiming deductions for RRSPs contributions, interest, carrying charges, or losses (self-employment, partnership, or rental losses come to mind). Also, be aware that Canadian dividend income can make your OAS clawback worse because, for every dollar of eligible dividends received, you have to report $1.38 on your tax return.
5. Contribute to a spousal RRSP. Even if you’re old enough that you no longer have an RRSP, you can contribute to a spousal RRSP for your spouse if he or she is still young enough to have a plan. You need to have RRSP contribution room available for yourself, but this can provide you with a valuable tax deduction for 2024.
6. Consider an in-kind transfer from your RRIF. If you have a RRIF and are required to make a minimum withdrawal from the plan, consider transferring an investment from your RRIF that you expect to grow in the future. This transfer will be considered a taxable withdrawal and can meet your minimum withdrawal requirement. As the investment grows in the future, the capital gain will be taxable in your hands personally at capital gains rates. The first $250,000 of capital gains earned personally each year is only one half taxable.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.