When you and your spouse are enjoying your retirement years together, sharing becomes a caring way to manage your taxes. The Canada Revenue Agency (CRA) allows senior couples to split pension income, offering potential tax savings. By transferring up to 50% of your qualifying pension income to your spouse or common-law partner, you can take advantage of lower tax brackets and potentially reduce your overall tax bill. It’s important to note that not all types of income qualify for pension income splitting, so consulting with a tax professional can help you determine eligibility and optimize your tax situation.
Pension Income Splitting: How to Determine Eligibility and Maximize Tax Savings
If you and your spouse or common-law partner are residents of Canada and meet certain criteria, you may be eligible to split pension income, leading to potential tax savings. Here’s what you need to know:
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Eligibility Requirements:
- Both you and your spouse must be Canadian residents on December 31 of the tax year being filed.
- In the case of a deceased senior, they must have been a resident of Canada immediately before their passing.
- You must be married or in a common-law partnership.
- You cannot be separated for a period of 90 days or more, including the end of the year.
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Types of Eligible Pension Income:
- Income from a registered pension plan is generally eligible, regardless of your age.
- Registered Retirement Income Fund (RRIF) withdrawals, registered annuities, and interest from non-registered annuities qualify if you are 65 years or older.
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Types of Ineligible Income:
- Old age security and Canada Pension Plan (CPP) benefits do not qualify.
- Investment income is not eligible, but converting investments to a Guaranteed Investment Annuity from a life insurance company can make it eligible. Consult a financial planner before making any transfers.
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Choosing the Right Allocation:
- Determine which spouse has the higher income and allocate their pension income to the spouse with the lower income.
- This strategy reduces the overall tax bill by moving income from a higher tax bracket to a lower one.
- If one spouse has no qualifying pension income, transferring at least $2,000 can benefit them through the pension income amount.
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Considerations and Deadlines:
- While pension income splitting can be beneficial, it’s important to assess other potential adjustments, such as nursing home housing fees based on income.
- Requests for pension income splitting must be made within three years of the filing deadline for the tax year in question.
- If you’ve already filed your return, keep in mind that income splitting could affect assigned benefits, credits, and refunds.
Remember, not everyone is eligible for pension income splitting, but if you meet the requirements, it’s a valuable option to explore and potentially save money on your tax return.
Also read: Understanding the Basics of Corporate Tax Returns
Key Ontario Credits You Must Know
The Ontario Credits provincial government’s Fall Economic Statement, released in November 2021, introduced several extensions for tax credits that are available for you to claim.
Ontario Credits: The Staycation Tax Credit: Enjoy Getaways Closer to Home
The Staycation Tax Credit offers you the opportunity to enjoy getaways closer to home while receiving a tax benefit. Starting from January 1 to December 31, 2022, you can claim up to 20% of your eligible accommodation expenses on your 2022 tax return, regardless of whether you owe any taxes for the year.
How much can you claim?
For families, you can claim up to $2,000 of your accommodation expenses, which can result in a refund of up to $400. Individuals can claim up to $1,000 of their expenses, with a potential refund of up to $200. Remember, these claims can be made for eligible accommodations during the specified period.
Exploring Eligible Accommodations for the Staycation Tax Credit
What types of accommodations qualify for the Staycation Tax Credit?
You can claim the Staycation Tax Credit for a variety of eligible accommodations, such as:
- Hotels
- Resorts
- Airbnbs
- Bed and Breakfasts
- Motels
- Campgrounds
- And more.
It’s important to note that costs for other items like food or entertainment cannot be claimed using this credit.
What are the requirements for a trip to qualify for the credit?
To be eligible for the Staycation Tax Credit, your trip must meet the following requirements:
- It should be for leisure purposes.
- The expenses should not be reimbursed by an employer, friend, or other sources.
- The person filing the tax return must have paid for the trip (although spouses, common-law partners, or eligible children can contribute as well).
- The duration of the trip should be less than one month.
- The trip must be subject to HST (Harmonized Sales Tax).
How can you apply for the Staycation Tax Credit?
Stay tuned for more information on how to apply for this new credit. To ensure you don’t miss out on important updates, consider subscribing to our newsletter. In the meantime, remember to keep your receipts if you go on any explorations within Ontario Credits.
Extending the Ontario Job Training Credit and Ontario Seniors’ Home Safety Credit
Ontario Job Training Credit:
Good news! The Ontario Job Training Credit will be extended for the 2022 tax season. The requirements for this credit are quite similar to the Canada Training Credit, with the main difference being that you must be a resident of Ontario.
To be eligible for this credit, you must meet the following criteria:
- You were a resident of Ontario on December 31, 2022.
- You are between the ages of 26 and 65.
- You have a Canada training limit above zero.
- Your tuition fees are paid to an eligible Canadian education institution.
Also read: Outsourcing Bookkeeping Services: Why It’s Beneficial
How much can you claim?
Under this temporary credit, individuals can claim 50% of their eligible expenses, up to a maximum refund of $2,000.
What qualifies as an eligible education institution?
Eligible education institutions include:
- Colleges, universities, or other institutions providing post-secondary level courses.
- Institutions offering occupational skill courses.
To determine if your school is an eligible education institution, you can visit the federal government’s website.
How can you check if you have a Canada training limit?
To find out if you have a Canada training limit, you’ll need to refer to your previous Notice of Assessment (NOA). You can access your notice online through your CRA My Account.
Ontario Seniors’ Home Safety Credit:
Great news for seniors! The Ontario Seniors’ Home Safety Credit will also be extended into 2022. The eligibility criteria will remain the same, allowing senior homeowners, renters, or individuals living with senior relatives to benefit from these Ontario Credits. To learn more about the specific eligibility requirements, please refer to our DIY Help Article.
How much can you claim?
This refundable tax credit is worth 25% of the cost of your renovations, with a maximum claim of $10,000. This means the highest refund you can receive is $2,500.
What expenses qualify for the credit?
You can claim the credit for various eligible expenses, including:
- Grab bars and reinforcements for the bath, toilet, and shower.
- Wheelchair ramps, stair lifts, and elevators.
- Walk-in bathtubs.
- Wheel-in showers.
- Additional light fixtures.
- Non-slip flooring.
- Automatic garage door openers.
For a comprehensive list of eligible expenses, please visit the Ontario provincial government’s website.
It’s important to note that if your payment was made in multiple installments, the final payment should be completed in 2022.
Keep in mind that all renovations must be carried out on your primary residence, the home where you primarily reside. If you are renovating a secondary residence, you must have the intention to move into that home within 24 months.
How do you apply for this credit?
Even if you don’t owe any taxes, you can still claim the Ontario Seniors’ Home Safety Credit when you file your return.
If you file a paper return, you will need to submit your receipts. For online filing, it is recommended to retain your receipts from vendors, suppliers, and contractors in case the CRA requests them at a later date.
