Blurb: Canada's seniors' tend to file more complicated returns due to their diversified revenue sources, often-extensive financial holdings and the many tax breaks that they are entitled to. As a result, seniors have much to gain by being tax savvy.
By Peter Diekmeyer o Bankrate.com
Decades ago, when life expectancy was shorter, it was easy to stereotype seniors as fragile beings who whiled away their golden years. But improvements in diet, exercise regimes and medical care have led to an explosion in both the number and diversity of Canada's elderly population.
"Because they are living longer and are in better health, seniors are choosing a wider variety of lifestyles," says Bill Gleberson, executive director of CARP, Canada's Association for the FiftyPlus. "And many are taking advantage of the extra years by electing to stay in the workforce longer."
Not surprisingly, the number of tax code provisions has also grown, to take into account the diverging circumstances of this increasingly heterogeneous population. And according to Evelyn Jacks, president of the Knowledge Bureau, and the author of numerous books on taxation, the stakes can be much higher for seniors.
"The older you get the more wealth that you tend to accumulate," says Jacks. "That means the tax savings you get from proper planning will rise proportionately."
To help cut through the fog, we've compiled a list of common
provisions that seniors should keep in mind when doing their
tax planning and filing.
Seniors benefit from numerous credits and deductions that are not available to ordinary Canadians. Among them:
* Age Credit. Canadians who were 65 years or older during the 2003 calendar year can claim a $606 federal tax credit. This works out to 16% of the "age amount," which was $3,787 last year, but is indexed annually. The age amount is subject to a 15% claw-back, for every dollar a taxpayer's net income exceeds $28,193. All or a portion of a taxpayer's unused credit may be transferred to his spouse.
* Pension Income Credit. Seniors are entitled to a 16% federal tax credit on the first $1,000 of their pension income starting in the year that they turn 65. The credit applies not only to registered pension plans, but also to DPSP, RRSP and RRIP payments as long as they are part of a regular periodic payment system. Lump-sum withdrawals don't qualify.
* Medical or Physical Impairment. Seniors who are suffering from a severe and prolonged mental or physical impairment are eligible to claim a tax credit, which is indexed annually. During the 2003 year the eligible amount was $1,005. It's important to remember that the impairment must be certified by a doctor, occupational therapist, audiologist. optometrist, or psychologist. According to Jacks, these sorts of claims are subject to frequent audits.
Medical Claims - Provisions related to seniors
Although today's seniors are in better health than any previous generation, they must nevertheless face the gradual breakdowns that inevitably accompanies the aging process. So it's not surprising that seniors' consume the lion's share of medical services in our economy. As a result the related tax provisions are of special interest to them.
Like all Canadians, seniors are eligible for a tax credit (16 percent in 2003) on the portion of their medical expenses that exceeds 3% of their net income. The income tax act includes a long list of eligible expenses including medicine, dentistry, chiropractic and dentistry costs. Private health and dental plan fees are also covered.
However seniors can claim numerous expenses that young Canadians cannot. These include artificial limbs, wheelchairs, prescription glasses and contact lenses. Travel costs to get to the hospital may also claimed in cases where medical treatment is not available within commuting distance from home.
Because the first 3% of medical costs are not eligible for the credit, Jacks advises married couples to claim medical credits on the lower income earner's returns.
RRSPs and RRIFs
More and more seniors continue working past retirement age. As a result they can still continue to contribute to their RRSPs up until they turn 69, when they are required to mature the plan. Maturing the plan means arranging to receive retirement income from the accumulated funds. This is typically done through purchasing an annuity or transferring the funds into a RRIF.
According to Jacks, seniors are often very reluctant to take money out of their RRSPs.
"They've worked all their lives to put away this next egg and they've often become very comforted by its very presence," Jacks says. "And they get very nervous at the thought of eating away at the capital."
But this reluctance can have a price Jacks says. That's because although an RRSP can be transferred to a surviving spouse upon death, if there is no surviving spouse, the plan is collapsed, often at a very high tax rate. As a result, Jacks advises seniors to think about paying as much RRSP and RRIF money out in the years before death, when the tax effects can be spread out over several taxation periods.
-- Posted June 24th, 2004
Peter Diekmeyer is the Montreal Gazette's management columnist. He can be reached at: email@example.com
|© 2004 Peter Diekmeyer Communications Inc.|