Smart Tax Strategies for Retirees: Take Advantage of Key Tax Credits

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Smart Tax Strategies for Retirees: Take Advantage of Key Tax Credits

As a retiree, there are a few tax credits you should be aware of which may reduce your tax bill. Some will require action and should be reviewed annually.

Every dollar you save in tax means either more spending and/or preserving your wealth for you.

KEY TAKEAWAYS:

• We will review which credits may take some planning or action on your part.

• We will review the credits your accountant will automatically apply.

WHAT IS A TAX CREDIT?

A tax credit is applied directly against the amount of taxes you owe and will result in a lower amount of tax payable. It is based on the lowest tax bracket, which is 15%. For example, if you are eligible for a tax credit of $4,000, you would pay $600 less in taxes. (15% of $4,000)

CREDITS THAT MAY REQUIRE SOME ACTION ON YOUR PART

PENSION CREDIT

You will receive a pension credit for the first $2,000 of eligible income. If you are under the age of 65, this is income from a pension plan. Once you over the age of 65, this would be income from RRIF and LIF payments.

Your Action: If you are over the age of 65, consider withdrawing $2,000 from a RRIF.

MEDICAL EXPENSE TAX CREDIT

You may be able to claim some of the money you spend on medical expenses on your income tax return. Some common medical expenses include:

• prescription drugs

• personal health plans

Care Facilities, expenses for attendant care and care in a facility such as a nursing or retirement home

• medical treatments not covered by provincial plans

• hearing and vision aids

• mobility aids

• some renovations for mobility-related aids

• See the CRA website HERE for a full list of expenses.

Jack Lumsden, Financial Advisor

You can claim medical expenses for you and your spouse/common law partner (CLP) for any 12-month period that ends in the tax year.

How does it work?

Unfortunately, you don’t get to use the entire amount of expenses as a deduction. However, a certain amount may qualify for tax credit.

The steps are:

1. Add up your expenses (best 12-month period).

2. From your expenses, deduct the lessor of 3% of your income, or $2,421 for 2021.

3. The tax credit is 15% of the above.

Example:

• So, if your income in 2021 is $60,000 and your expenses are $3,000:

1. $3,000 of expenses

2. 3% of $60,000 = $1,800 and this is less than the base of $2,421

then $3,000 of expenses minus $1,800 = $1,200

1. Your tax credit is $1,200 times 15% = $180.

The lower-income spouse/CLP may have a lower threshold and may be able to claim more expenses. Fortunately, your accountant will be able to do the calculations for you as they can be complex, especially if you live in a retirement or nursing home as there are special rules.

Your Action: Keep track of your medical expenses and provide them to your accountant.

DISABILITY TAX CREDIT

As you age, if you, your spouse/CLP, or your dependent have a severe and prolonged impairment and meet certain conditions, you may be eligible for the Disability Tax Credit (DTC). For example, Alzheimer’s would qualify for the Disability Tax Credit.

To determine eligibility, you must complete Form T2201, Disability Tax Credit Certificate and have it certified by a medical practitioner.

In 2021 the disability amount was $8,662; therefore this would reduce your tax owing by $1,299.30 (15% tax credit).

If you or your spouse/CLP live in a nursing home, you may want to apply for the Disability Tax Credit. f you or your spouse/CLP live in a retirement home, you may wish to review to see if you qualify.

Your Action: You will need to apply for this.

Jack Lumsden, Financial Advisor

THE CANADIAN CAREGIVER CREDITS

If you support your spouse or common law partner who has a physical or mental impairment, you may be eligible for the Canadian Caregiver Credit.

The maximum you can receive in 2021 is 15% of $7,348 as a credit. ($1,102.20). There is an income threshold you will have to review.

Your Action: Bring this to the attention of your accountant. You may have to provide a statement from a medical practitioner. This is not needed if you have the Disability Tax credit.

HOME ACCESSIBILITY TAX CREDIT

These are renovations that allow the individual to be more mobile and functional within the home, and/or reduce the risk in gaining access to the home.

To qualify for the home access credit:

• you must be age 65,

• and eligible for the Disability Tax Credit.

A maximum of $10,000 per qualifying individual can be claimed per dwelling. You will need supporting documents, and be sure to review what expenses may be eligible.

Your Action: Apply for the Disability Tax credit, and review expenses that may qualify.

SENIORS’ HOME SAFETY TAX CREDIT

The Ontario budget proposes that starting in 2021, a refundable tax credit be available that is worth up to 25% of $10,000 of eligible expenses to make homes safer and more accessible.

You must be age 65 by the end of 2021 or live with someone who is.

The improvements would have to be towards the principal residence, and there is no income test.

Sample examples:

• grab bars and related reinforcements around the toilet, bathtub, and shower

• wheelchair ramps

• stair lifts

• elevators

• renovations to permit first floor occupancy or a secondary suite for a senior

(Source: HERE)

Your Action: Be sure to review what may qualify before starting renovations. Review with your accountant.

Jack Lumsden, Financial Advisor

CREDITS THAT YOUR ACCOUNTANT WILL AUTOMATICALLY APPLY

AGE CREDIT

For those age 65 and older the age credit for 2021 is $ 7,713. You will start to lose this amount at the rate of 15% for every dollar of income you earn over $38,893. You will lose the entire amount once your income is $90,313 or greater.

Your Action: Your accountant will do this for you on your income tax return.

GOODS AND SERVICES TAX/HARMONIZED SALES TAX (GST/HST) CREDIT

You may be eligible for the GST/HST credit, a tax-free quarterly payment that helps individuals and families with modest incomes offset all or part of the GST or HST they pay. To receive this credit you must file an income tax and benefit return every year, even if you did not receive income in the year. If you have a spouse or common-law partner, only one of you can receive the credit. The credit will be paid to the person whose return is assessed first. The amount will be the same, regardless of who (in the couple) receives it.

Your Action: Your accountant will apply for this automatically.

SUMMARY:

Credits you may need to act on are:

o Pension credit

o Medical Tax credit

o Disability Tax credit

o Caregiver’s amount

o Home Accessibility credit

o Seniors Home Safety

Credits your accountant will automatically apply:

o Age credit

o HST/GST credit

REVIEW ANNUALLY

These and any new credits need to be reviewed annually to determine if you need to take some action. Your Certified Financial Planner® professional and accountant should be able to help you with this.

For more information you can refer to Preserving Wealth: The Next Generation - The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®

For your FREE e-reader Copy CLICK HERE

For your free retirement readiness assessment CLICK HERE

Buy hard copy of Preserving Wealth HERE

Jack Lumsden, MBA,CFP® Financial Advisor, Assante Financial Management Ltd.

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.

Insurance products are services provided through Assante Estate and Insurance Services Inc.