There’s a little-known tax savings strategy that we like to talk about every year and that is pension income splitting. It can be easily claimed, though it isn’t well highlighted in the income tax guide and can provide tax savings to seniors.
The Canadian Pension Plan (CPP) has had changes made to it in recent years to give Canadians more flexibility. But with this, has come more complexity. Today I would like to add some clarity to help you better understand how the program works.
It has been quite the year so far and many people are experiencing financial difficulties they never expected.
And for those with retirement savings, the impact of the stock market downturn can feel intimidating. The good news is, those under the age of 71 have the option to wait it out in hopes that the market makes a recovery.
The Old Age Security (OAS) benefit is Canada’s largest pension program available to support senior Canadians. Unlike the Canada Pension Plan or private pension/retirement funds, you do not have to pay into OAS to receive it. It is instead paid for by general tax revenues.
Every year, the government announces the current rates for Employment Insurance (EI) and Canada Pension Plan (CPP) for both employees and employers. Understanding these rates is the best way to optimize your tax return.
Below are the 2020 rates and maximums:
In Canada, there are four main sources of retirement income – Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), Old Age Security (OAS) and the Canadian Pension Plan (CPP).
Depending on when you begin withdrawing funds from these sources, and whether you are working full time, part-time or are fully retired, the after-tax income of $100 of income will vary greatly from one taxpayer to another.
As a result, determining when you should start withdrawing funds and how you should structure your income for retirement can seem daunting. To help you on your way to maximizing income and minimizing taxes, the Canadian Government has designed a calculator to assist taxpayers with just this.
When it is time for you to retire, there are a number of retirement tools you can draw from when you reach retirement age – Employer-Sponsored Pension Plans, Registered Retirement Savings Plans, Registered Retirement Income Funds and the Canada Pension Plan – but, whether you receive these and the amount you receive, is based on contributions made to these accounts.
Registered Retirement Savings Plans (RRSPs) and Registered Pension Plans (RPPs) are retirement savings tools that help you plan for your financial future.
Knowing the similarities and differences between the two is critical to understanding their tax treatment.
