Weekly Tax Tips
Purchase an Annuity or RRIF to Claim the Pension Income Credit
Date: 10 Dec 2010
If you’re 65 or over, you’re entitled to claim a federal tax credit on your first $2,000 of pension income. The credit is equal to the tax that would be paid on the income at the lowest tax bracket. If you don’t currently receive pension income and are in the lowest tax bracket (income less than $40,970 for 2010 federal tax purposes; threshold varies by province/territory), consider transferring funds to a registered retirement income fund (RRIF) and withdraw $2,000 per year. If you’re in the low tax bracket, the income will effectively be received tax-free federally. Note, however, that some of the pension income will be taxed in most provinces credit amounts are less than $2,000). If you’re in a higher bracket, there will be a tax cost, depending on your marginal tax rate. This strategy will also work if you use a portion of your RRSP funds to purchase an annuity which pays at least $2,000 per year.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 10 Dec 2010.
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