Topic guide

Seniors, CPP & OAS

Retirement is the one stage of life where you control your own taxable income — which is what makes it the stage where planning is worth the most, and where a surprise bill is entirely avoidable.

Why newly retired people owe money

CPP and OAS are fully taxable, and neither has tax withheld unless you ask for it. Add a pension, a RRIF and some investment income and each payer withholds as if it were your only income. Request voluntary withholding on CPP and OAS — it's simpler than paying quarterly instalments.

What's taxable, and how

CPP retirement pension

Fully taxable. It can also be shared with a spouse who is also 60 or older — a formal CPP pension sharing arrangement through Service Canada, different from pension income splitting on your return.

Old Age Security

Fully taxable, and subject to recovery once net income passes an annual threshold: 15 cents of OAS clawed back for every dollar above it, until it's gone entirely at the upper limit. Driven by net income, so deductions matter.

Guaranteed Income Supplement

Not taxable, but sharply income-tested — and it must be re-established each year by filing on time. For GIS recipients, a TFSA withdrawal is invisible while an RRSP withdrawal can cost most of the benefit.

Company pensions and RRIF income

Fully taxable, and generally eligible for both pension income splitting and the pension income amount once you're 65. RRIF income counts as eligible pension income from 65; a company pension can qualify earlier.

TFSA withdrawals

Not income at all — invisible to the OAS clawback, GIS, the age amount and the Ontario health premium. This is why a TFSA is disproportionately valuable in retirement.

Pension income splitting

You can elect to move up to 50% of eligible pension income to your spouse or common-law partner on your returns. It's an election made at filing, and both returns have to report it the same way — no money actually changes hands.

Done well, one election can do four things at once: move income out of a higher bracket, create a second pension income amount and age amount, reduce or eliminate an OAS clawback, and lower the Ontario health premium on the higher-income return. It's the single highest-value line on most retired couples' returns.

The optimal split is rarely the maximum. Pushing too much across can drag the lower-income spouse into a clawback of their own — the right number has to be calculated, not assumed.

Two decisions with long consequences

When to start CPP

Taking it before 65 permanently reduces the monthly amount; deferring past 65 permanently increases it, to a maximum at 70. Break-even math is only part of it — health, whether you're still working, other income, and how the extra amount interacts with OAS and GIS often matter more.

Converting the RRSP at 71

By December 31 of the year you turn 71, an RRSP must become a RRIF or an annuity. From the next year a minimum withdrawal — a percentage that rises with age — is taxable whether you need it or not. Basing the minimum on a younger spouse's age is an option chosen once, at setup.

The years between 60 and 71 are the opportunity

Deliberately drawing RRSP income in low-income years — before CPP, OAS and forced RRIF minimums stack up — often lowers lifetime tax substantially and reduces the tax hit on the final return. Doing nothing is itself a decision, and usually the expensive one.

Credits worth checking at 65+

Age amount

A credit from age 65, reduced as net income rises and transferable to a spouse if unused.

Pension income amount

On the first $2,000 of eligible pension income — a reason to convert a little RRSP to a RRIF at 65.

Medical expenses

Often large in retirement — including attendant care, nursing home fees and prescribed devices.

Disability tax credit

Under-claimed by seniors. Walking, hearing and mental functions all count; backdatable up to 10 years.

Home accessibility expenses

Renovations that improve safety or access for a qualifying person — grab bars, ramps, walk-in tubs.

Ontario senior credits

Including the Ontario Trillium Benefit and GAINS for low-income seniors — all dependent on filing.

Retiring in the next few years?

The sequence you draw income in — RRSP, TFSA, non-registered, CPP, OAS — is worth modelling once, properly, before the first withdrawal.

Talk to a CPA