If you reported qualified pension, superannuation, or annuity payments on your return, you may be eligible to claim up to CAD 2,000 of your federal pension income amount. This non-refundable tax credit allows you to lower your tax liability. Pension Income Amount is not available for benefits like Old Age Security (OAS) or the Canada Pension Plan (CPP).
Even though there are not many tax benefits from the credit, being qualified for it affects some tax-saving options, such pension income splitting. As more couples choose this technique, their tax planning centers around the amount of pension income. So check this page for Pension Income Amount, What is Pension Income Amount? and Who is Eligible for CAD 2000 Pension Income Amount.
Canada Pension Income Amount
There are some tax credits that we may apply for once we turn 65 in Canada. Although the amount of tax savings from these credits varies, they generally assist in reducing the income tax owed by those over 65 and can be particularly beneficial in lowering retirement-related taxes. You can apply for the Pension Income Tax credit if you are 55 years of age or older. In essence, it allows you to deduct a tax credit equivalent to the lesser of CAD 2,000.00 or your pension income from the taxes that must be paid.
Depending on the province in which you reside, this converts into annual real tax savings of $440 to $720. The pension income tax credit cannot be carried over annually and is not refundable. The highest federal tax savings attainable is CAD 300 per year, given the federal tax credit rate of 15%. Additionally, there are pension income levels for provinces. Only if you are in the lowest tax category will you be able to claim the first CAD 2,000 of your pension income tax-free.
Who is Eligible for CAD 2000 Pension Income Amount
For taxpayers who are 65 or more:
- Income from a pension or SP
- Benefits of a Registered Retirement Plan (RPP) for life
- Income from a Registered Retirement Income Fund (RRIF)
- Income from the Deferred Profit Sharing Plan (DPSP)
- Income from a Registered Retirement Plan (RRSP)
- Benefits of the Employee Benefit Plan (EBP)
- Regular annuities and ESPI
- Pension benefits that change
- Foreign pension income, unless it comes from a United States individual retirement account or is tax-free in Canada due to a tax treaty
For taxpayers who are less than 65:
- Payments from a superannuation or pension plan for life annuities
payments received as a consequence of the death of a spouse or common-law partner - since tax year 2010 annuity payments from the Saskatchewan Pension Plan (SPP) or payments from an RRIF, or annuity payments from an RRSP or from a DPSP
PIA: Eligible Pension and Annuity Income?
| Income | Slip/Form | Line Number |
| Regular annuities and IAAC | T5 | Line 11500 |
| RPP lifetime retirement benefits | T3 | Line 11500 |
| ESPI | Form T1032 | Line 11600 |
| Variable pension benefits | T4A | Line 11500 |
| DPSP income | T4A | Line 11500 |
| RPP lifetime retirement benefits | T4A | Line 11500 |
| RRSP income | T4RSP | Line 12900 |
| Regular annuities and IAAC | T4A | Line 11500 |
| RRIF income | T4RIF | Line 11500 |
| EBP benefits | T4A | Line 11500 |
| Foreign pensions | – | Line 11500 |
How to Calculate Pension Income Amount
You will use a worksheet to fill out Line 31400, Pension income amount, to determine how much of the pension income amount you may claim. Then, on line 31400 of your T1 return, you will put the amount on line A or CAD 2,000, whichever is smaller. You will be entitled to the Pension Income Amount in the event that you are able to share it.
With the exception of the Retirement Compensation Arrangement (RCA), which is issued in the form of a T4A-RCA slip, you may often share your pension income with your spouse or common-law partner when completing your tax return if you get annuity payments (periodic payments).
How much can you claim?
- There is a 15% federal tax credit rate.
- The most that may be saved on federal taxes is CAD 300. This is predicated on the capped rate of CRA 2,000 × 15%.
Additionally, there are pension income levels for provinces. - Lower tax bracket: If a client is in the lowest tax bracket, they are eligible to claim and receive the first CAD 2,000 of their pension income tax-free.
- Higher tax bracket: They will pay a lower rate of tax on their pension income if they are in a higher tax bracket.
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