Tax tips for seniors in a COVID-19 world
Proper tax planning, ideally, should be a year-round activity. And this year, especially, with everything so out of whack, it’s never too late, or too early, to plan.
For example, are you turning 65 or older? The Chartered Professional Accountants of British Columbia (CPABC) offers some tax tips from to help you maximize tax savings:
1. Get your benefits
If you’ll soon be turning 65, make sure you have applied to receive your Old Age Security and, if you haven’t done so already, consider applying to Canadian Pension Plan (CPP). The default age to claim CPP pension benefits is 65, but you can choose to begin receiving your pension benefits as early as age 60, at a cost of reduced monthly benefits, or you can choose to delay receiving your pension benefits until after age 70 to receive increased monthly benefits.
2. Make plans for your RRSP funds
You must wind up your RRSP by Dec. 31 of the year you turn 71. However, a complete withdrawal at that time is usually not the best option, because your entire RRSP balance will be taxed in the one year. Instead, consider transferring your RRSP funds on a tax-deferred basis to a Registered Retirement Income Fund (RRIF), or use your RRSP funds to purchase an annuity.
3. Divide and conquer (your pension income)
Consider splitting your pension income with your spouse to allow the higher-earning individual to share up to half of their pension income with their lower-earning spouse. This will help level your income so one person isn’t taxed significantly more than the other.
4. Retain your medical expense records
In certain circumstances, you can claim a tax credit for medical expenses. For 2019, the tax credit is available only on the portion of the medical expenses that exceeds the lesser of three per cent of your net income or $2,352 for federal tax purposes.
5. Report foreign property
If you spend the winter months living in your vacation home and then rent it out during the rest of the year, you will be required to file a U.S. income tax return and report that income on your Canadian income tax return. You must also indicate whether your foreign property is worth more than $100,000. The foreign property reporting requirements are complex, and failure to comply can result in significant penalties.
When in doubt, contact a chartered professional accountant.