Seniors' Tax Guide: The Age Amount and Pension Splitting

Retirement brings a shift from employment income to pension income, and with it, a new set of tax opportunities. Two of the most valuable tools for Canadian seniors are the Age Amount and Pension Income Splitting. But navigating the clawback zones and eligible expenses is key to keeping more of your hard-earned money.

1. The Age Amount

If you are 65 or older on December 31st, you may claim the Age Amount, a federal non-refundable tax credit. For 2025, the maximum amount is over $8,790, which translates to a direct tax reduction of about $1,300.

The Clawback: The Age Amount is income-tested. If your net income exceeds approx. $44,325, the amount is reduced by 15%. It is completely eliminated once income reaches roughly $102,925. This creates a high "effective marginal tax rate" for seniors in this income bracket.

Strategy: If you are close to the clawback threshold, consider deferring RRIF withdrawals (if over the minimum) or realizing capital losses to lower your net income and preserve the credit.

2. Pension Income Splitting

This is arguably the single most effective tax strategy for retired couples. It allows you to allocate up to 50% of your eligible pension income to your spouse or common-law partner for tax purposes.

Example: John earns $80,000 from a company pension. Mary earns $0. John pays income tax at a high marginal rate. By splitting 50% ($40,000) to Mary, that income is taxed in her hands at the lowest tax bracket. This can save the couple thousands of dollars per year.

How to Elect for Pension Splitting

You don't actually transfer cash to your spouse. It's a paper election made when filing your tax returns using Form T1032 (Joint Election to Split Pension Income). Both you and your spouse must sign this form each year you want to split income.

Eligible Income Includes:

• Life annuity payments from a superannuation or pension fund (at any age).
• RRIF/LIF withdrawals (only if you are 65+).
• RRSP annuity payments (only if you are 65+).

Ineligible Income: Old Age Security (OAS), Canada Pension Plan (CPP) benefits, and withdrawals from an RRSP that are not annuity payments cannot be split using this form.

3. Medical Expenses for Seniors

Seniors often have higher medical costs. You can deduct varying expenses such as:

• Nursing home costs (this can be a massive deduction).
• Attendant care salaries (claiming this may affect the disability tax credit).
• Hearing aids and batteries.
• Walking aids, wheelchairs, and bathroom rails.
• Travel for medical services not available locally (40km+).
• Premiums paid to private health services plans (e.g., Blue Cross).

Tip: Usually, it is beneficial for the spouse with the lower net income to claim the medical expenses, as the deduction is reduced by 3% of net income.

4. Home Accessibility Tax Credit (HATC)

If you are 65+ (or eligible for the disability tax credit), you can claim a non-refundable tax credit for renovations to make your home safer or more accessible. You can claim up to $20,000 in eligible expenses resulting in a tax credit of up to $3,000.

Eligible Renovations: Grab bars, walk-in tubs, wheelchair ramps, widening doorways, and non-slip flooring. This is in addition to the Multigenerational Home Renovation Tax Credit if applicable.

5. The OAS Clawback (Recovery Tax)

Old Age Security (OAS) is taxable. But worse, if your income is too high, the government takes it back. For the 2025 tax year, if your net income exceeds roughly $90,997, you must repay 15% of the excess. If your income hits approx $148,000, your OAS is completely clawed back.

Strategy: Manage your RRIF withdrawals or recognize capital gains in a specific year to stay under the threshold. If you anticipate a high-income year (e.g., selling a cottage), realize that your OAS payments for the following year (July to June) may be reduced.

6. Converting RRSP to RRIF

You must close your RRSP by the end of the year you turn 71. Most people convert it to a Registered Retirement Income Fund (RRIF). Once in a RRIF, you are forced to take a minimum withdrawal every year (starting at around 5.28% at age 71 and increasing annually).

Withholding Tax Warning: Financial institutions are not required to withhold tax on the minimum withdrawal. This often leads to a surprise tax bill in April. You can request your bank to voluntarily withhold tax (e.g., 20% or 30%) from your payments to avoid this.

7. Disability Tax Credit (DTC) Transfer

If a senior qualifies for the Disability Tax Credit (DTC) but doesn't have enough taxable income to use the full credit, the unused portion can be transferred to a supporting spouse or child. This is a valuable credit worth over $9,000 in tax savings (federal + provincial).

8. Foreign Pensions

If you receive a pension from another country (e.g., UK State Pension, US Social Security), it must be reported in Canadian dollars. However, tax treaties may allow for a deduction (e.g., 15% deduction for US Social Security) or a foreign tax credit to avoid double taxation.

Key Takeaways

• Claim the Age Amount if net income is under ~$98k.
• Split eligible pension income (up to 50%) to lower family tax brackets using Form T1032.
• Deduct nursing home and attendant care costs.
• Use the HATC for safety renovations ($20k limit).
• Watch out for the OAS clawback zone (starts at ~$90k).
• Plan for tax on RRIF minimum withdrawals.

Frequently Asked Questions

Q: Can I split my CPP income with my spouse?
A: Yes, but not using the Pension Income Splitting election. You must apply to Service Canada for "CPP Pension Sharing," which is based on the number of years you lived together while contributing.

Q: Is the OAS pension taxable?
A: Yes, OAS is taxable income. The Guaranteed Income Supplement (GIS), however, is non-taxable.

Q: Can I claim medical expenses for my parents?
A: If you support your parents financially, you may be able to claim eligible medical expenses you paid on their behalf, as well as the Canada Caregiver Credit.

Q: When should I convert my RRSP to a RRIF?
A: You must do it by the end of the year you turn 71. However, if you retire earlier and need income, you can convert sooner. Once converted, mandatory withdrawals begin the following year.