FINANCIAL
FINANCIAL
Savings and Tax Ideas for Canadian Seniors
BY GERHARD SAWATZKY , CFP ®
Saving money using Canadian tax breaks makes a significant difference over time . We don ’ t always realize how much tax we are paying . As a retired teacher , I understand how Canadian income tax rules directly impact ARTA members . By using certain investment strategies , our money grows with the benefit of tax-free compounding . We should say , “ Yes !” to offers of free money from the government , and there are a number of ways to do so .
Our principal residence in Canada is an investment exempt from capital gains tax . Your home may increase in value significantly over time , but you will not be taxed on this growth . Other investment properties such as rental properties are taxed on their capital gain when they are sold .
The Tax Free Savings Account ( TFSA ) federal program that began in 2009 offers an excellent way to increase savings without paying tax on investment growth . When funds are withdrawn , they are free of tax . The TSFA program that began with a $ 5,000 eligibility per year for adults now has an eligibility of $ 5,500 per year for a total of $ 46,500 of room in 2016 . As investments increase in value , this amount of room increases . TFSAs work well for retirement because withdrawals do not trigger clawbacks of Old Age Security or Guaranteed Income Supplement benefits — unlike Registered Retirement Savings Plans ( RRSPs ) and Registered Retirement Income Fund ( RRIF ) withdrawals . Your TFSA is
transferrable to your spouse upon your death , or may be transferred to a named beneficiary . In addition , a variety of investments are eligible for TFSA accounts .
RRSPs save taxes in two ways . First , when contributions were made during your working life , you received a tax deduction for that tax year . Second , the investment income each year is deferred until funds are withdrawn . This arrangement works very well , provided your income at the time of withdrawal is lower than your income when you contributed . You may withdraw funds at any time ; however , you must withdraw minimum amounts to convert to a RRIF when you turn 71 . Upon your death , any amount remaining in the RRIF is transferrable to your spouse . If there is no living spouse , these funds are viewed as income for the estate and taxed accordingly .
Education savings in the form of Registered Education Savings Plans ( RESPs ) allow savings to have sheltered growth and the bonus of federal grants . There is a federal grant of 20 % is for annual contributed amounts of up to $ 2,500 . At withdrawal time , the fund growth is credited to the student ’ s income , usually with no taxes needing to be paid . Grandparents should consider contributing to family RESP plans to maximize these grants .
Currently , at age 65 most Canadians are eligible for Old Age Security ( OAS ) monthly payments . This money comes from general revenue — you do not need to contribute . However , if your income is too high from other sources , your OAS payments may be clawed back at tax time .
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