That’s a tax-efficient way to withdraw money from registered retirement savings plans (RRSPs). “To make this tax efficient, the withdrawal amount must be transferred to the RRIF (registered retirement fund) first,” said Ardrey. After age 65, this measure will generate a pension tax credit and if a couple has different RRSP/RRIF account sizes, “the income can be split between the spouses.”
If CPP and OAS were both pushed back to 70, payments would be 42% and 36% higher respectively, allowing for larger pension payments over the taxpayer’s lifetime, Ardrey said. This also reduces future RRIF payments, “increasing the likelihood that OAS will not be paid back.”
Dividend tax credits
Canadian retirees can take advantage of another tax bracket by getting Canadian eligible dividends in their tax-advantaged investment accounts. Ontario taxpayers can receive $57,375 in (unearned) budget income and, if they have no other income, they will have that amount and zero tax owed, Ardrey said. And “if two spouses could use the same strategy, that’s about $115,000 in tax-free income.”
Keep in mind, however, that Canadian eligible shares “grew” on tax returns by 1.38. It is this gross amount—not the actual dividend received—that contributes to the calculation of the OAS clawback. Ardrey estimates that the OAS clawback begins to occur at about $66,000 of benefit income. Retirees need to consider how this income stacks up against other income such as CPP.
Ulmer says that while the amount of income at which OAS is reimbursed is the same for everyone, the OAS ceiling is not the same for everyone.
“If an OAS recipient has delayed their OAS past 65, then the ceiling is too high,” he says. “This is a function of how clawback works—15 cents on every dollar. The more OAS, the more room to go before the 15% clawback eats it all. ” He adds that the OAS ceiling depends on when you start collecting: “So delaying can be a good strategy for this reason alone—you can keep more of your OAS if you have a higher income in retirement.”
Allan Small, senior investment advisor and writer for Toronto-based IA Private Wealth and MoneySense, says that while investment strategies are individualized, he’s starting to see some investors move away from RRSP investing.
Some feel that if tax deductions are not necessary, they may “put in a TFSA instead. Money grows tax-free, just like in an RRSP, but you don’t pay taxes when money is withdrawn from this account. ”
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