Chapter 7 - Seniors

Chapter 7 SENIORS
Objectives
After successfully completing this chapter, you will learn
about:
Old Age Security benefit payments;
Canada Pension Plan benefits;
pension and annuity income;
Guaranteed Income Supplement payments;
Registered Retirement income fund; and
Pension Income Splitting.
Old Age Security Pension
The Old Age Security act came into force in 1952, replacing legislation from 1927 requiring the
federal government to share the cost of provincially runs, means-tested old age benefits. The Old
Age Security program is one of the cornerstones of Canada's retirement income system. Benefits
include the basic Old Age Security pension, the Guaranteed Income Supplement and the Spouse's
Allowance. Federal government finances the Old Age Security program from general tax revenues.
All benefits payable under the Old Age Security Act are adjusted in January, April, July and
October if there is increase in the cost of living as measured by the Consumer Price Index.
The Old age security pension is a monthly payment available to most Canadians aged 65 or older.
OAS benefits are based on two factors: age and number of years of residence in Canada after the
age of 18. It is considered taxable income and is subject to a recovery tax if your individual net
annual income is higher than the net world income threshold set for the year.
Taxpayers Living in Canada: The following three conditions must be met before person can
receive Old Age Security:
Taxpayer must be 65 or older.

Taxpayer resides in Canada and is a Canadian citizen, Immigrant or a legal resident at the
time the pension is approved.
Taxpayer has lived in Canada for at least 10 years as an adult (there is an exception to the
10-year rule for immigrants from certain European countries, e.g. Italy).
Taxpayers Living outside Canada: Taxpayers can receive OAS payments outside of the country
if they meet the following conditions:
Taxpayer is 65 or older
Taxpayer left country and was Canadian citizen or legal resident of Canada at the time of
departure.
Taxpayer lived in Canada for at least 20 years as an adult.
Softron Tax Page 393

Applying for Old Age Security Benefits: A taxpayer should
apply for the Old Age Security pension six months before he/she
turns 65. If the application is late, a back payment for up to 12 months
can be received from the time an application is received.
In order to apply for the benefits a taxpayer needs to provide proof of

birth and citizenship or immigration documents. Application kit can
be obtained from any Service Canada office.
Taxation of Old Age Security: Old age security pension is paid by Health and Welfare Canada,
which issues T4A (OAS) slip to all recipients. Like most other retirement income, Old age security
pension is a taxable income. The maximum benefit for the year 2019 is $7,271.67.
For more info: https://www.canada.ca/en/services/benefits/publicpensions.html
Example 1: Yurkiv Andrew who is sixty-nine-years old received the following information from
Service Canada. Does she have to pay tax on old age security? How would you report this on her
return?
Answer: Old age security pension is taxable based on taxpayer’s marginal rate.

OAS benefit rates are reviewed in January, April, July and October to reflect increases in the cost
of living as measured by the Consumer Price Index (CPI).
The term "spouse" includes a common-law partner.
Payment amounts for the Old Age Security benefits (Guaranteed Income Supplement, Allowance
and Allowance for the Survivor) are based on your marital status and level of income. They are
not considered taxable income.
Eligibility for the Guaranteed Income Supplement is reviewed every year effective in July and is
based on the applicant’s net income in the previous calendar year, or the combined net income in
the case of a couple. Therefore, from year to year, payments can increase, decrease or even cease
according to reported changes in annual net income.
Pensioners are not eligible for benefits if their income, or the combined income of them and their
spouse, is more than the maximum income shown on the chart. Canadian Taxpayers who are age
65 or older and eligible for OAS must repay part of their OAS when their net income exceeds
certain level.
Old Age Security pension recovery tax
If your net world income exceeds the threshold amount ($77,580 for 2019), you have to repay part
or your entire OAS pension. Part or your entire OAS pension is reduced as a monthly recovery
tax.
You must pay the recovery tax if:
your annual net world income is more than $77,580 (for 2019, in Canadian dollars); and
you live in a country where the non-resident tax on Canadian pensions is 25% or more.
For 2019, the spouse’s allowance stops at annual income of $34,416 while the GIS (Guaranteed
income supplement) stops at $44,592.
Recovery Tax Period Income year Minimum Income Maximum Income

Recovery Threshold Recovery Threshold
July 2019 to June 2020 2018 $75,910 $123,386

July 2020 to June 2021 2019 $77,580 $125,937
July 2021 to June 2022 2020 $79,054 $128,137
For more information:

https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html

Net Federal Supplement & Allowance
Guaranteed Income supplements or Spouse’s allowance is

collectively referred to as “Net Federal Supplements.” Net
Federal Supplements are based on annual income, since
annual income can change from year to year; the supplements
are renewed every year. In prior years, pensioners had to apply
for these benefits every year.
However, since these benefits are based on prior year’s

income, the government had announced since 1999 that
recipients could automatically renew their Supplements
simply by filing their income tax returns by April 30th.
The Guaranteed Income Supplement and The Spouse’s allowance are not payable outside Canada
beyond a period of six months, regardless of how long the person has lived in Canada.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement is a monthly benefit paid to residents of Canada who receive
a basic Old Age Security pension and have little or no other income.
Once applied the Guaranteed Supplement payments may begin in the same month as Old Age
Security pension payments. The amount of benefit received is based on marital status and annual
income. In case of married or common-law couples it is based on combined family income.
The Guaranteed Income Supplement is based on annual income, or the combined annual income
(married or common-law). Since annual income can change from year to year, the taxpayer must
renew the Supplement each year. Most seniors can automatically renew their Supplement simply
by filing their income tax return by April 30. Otherwise, the taxpayer must complete renewal
application. Each July, the recipient will receive a letter that tells how much they should receive
in monthly payments.

How to Complete Guaranteed Income Supplement Application
When applying for the Supplement, the taxpayer, and in the

case of a couple, taxpayer and spouse, must report the
following income:
Canada Pension Plan or Quebec Pension Plan benefits
Private pension income and superannuation
Foreign pension income
RRSPs, cashed
Employment Insurance benefits
Interest on any savings
Any capital gains or dividends
Income from any rental properties
Any employment income
Income from other sources such as workers' compensation payments, alimony, etc.
Benefits such as Guaranteed Income Supplement and spouse’s allowance are not taxable. The
department will stop paying the Guaranteed Income Supplement if one of the following things
happens:
The taxpayer did not reapply by filing a tax return by April 30 of each year or did not submit
an application form when asked to do so.
The taxpayer’s income, or the total income of taxpayer and his/her spouse, is more than the
maximum amount allowed.
The taxpayer leaves Canada for more than six months in a row.
The taxpayer dies.
Guaranteed income supplement is not taxable; however, this must be included in income on the
tax return.
Spouse’s Allowance and Widowed Spouse’s Allowance

The Spouse's Allowance is designed to recognize the difficult circumstances faced by many
widowed persons and by couples living on the pension of only one spouse. The Spouse's
Allowance may be paid to the spouse of an Old Age Security pensioner, or to a widow or widower.
To qualify, an applicant must be between the ages of 60 and 64 and must have lived in Canada for
at least 10 years after turning 18. The Spouse's Allowance stops when the recipient becomes
eligible for an Old Age Security pension at age 65. In addition, the Spouse's Allowance stops if a
widow or widower remarries. The allowance is part of net federal supplements and is not taxable.
How are Supplements reported?

Net federal supplements are shown in Box 21 of the T4A(OAS). The full amount of benefit is
included in income on Line 14600 of Income Tax and Benefit Return to arrive at Total Income.
Since both of these benefits are non-taxable an equal amount of benefit is claimed as a deduction
from net income on Line 25000 to arrive at taxable income. The inclusion of Guaranteed Income
supplement or Spouse’s allowance in the income can affect a taxpayer’s age amount, medical
expenses, Provincial tax credit and GST credit.

Example 2: Angela has the following slips from Service Canada. Where would you report this
income on the tax return? Does she have to pay tax on net federal supplements?
Answer: Federal supplements are not taxable. The amount of net supplement must be included in
income, but corresponding deduction can be taken when calculating taxable income.

Repayment of Old Age Security Benefits
Taxpayers with net income of $77,580 or more may have

to repay all or part of the old age security benefits. The
social benefit repayment is often called “clawback”
which is equal to the lesser of:
1) total of old age security pension received; and
2) 15% net income if more than threshold amount
($77,580).
If the taxpayer has to repay part or entire old age security

pension benefits, the taxpayer can claim the repayment
amount as deduction on line 23500 of the Income Tax
and Benefit Return. The repayment amount will be
added to the tax payable on line 42200 of the Income Tax
and Benefit Return.
Example 3: Nadia (66 years old) has $7,271.67 in Old Age Security benefits. She received taxable
capital gains of $75,308.33. Does she have to repay any part of her old age security pension?
Answer: Yes, Nadia has to repay part of her Old age security pension, since her net income of
$82,580 exceeds $77,580 threshold. Nadia has to repay $750.00 of her OAS benefits. She can enter
$750.00 on Line 42200 Social benefits repayment, where it is added to her total taxes payable. She
will also deduct repayment amount on Line 23500 since the income is already declared on Line
11300.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-
return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-23500-social-
benefits-repayment/line-23500-old-security-oas-benefits-repayment.html
Tax planning tip: The taxpayer may be able to contribute to RRSP if under the age of 72. The
taxpayer must however have the RRSP limit. By contributing to RRSP, the net income can be
reduced to a point where a taxpayer is not subject to clawback. Nadia should have bought RRSP
to avoid clawback.
CPP benefits are not subject to Clawback.
Old Age Security Benefits for Non-Residents
Old Age Security incomes are subject to non-resident withholding tax of 25% or whatever the
lower rate may be specified in tax treaty with the country of residence of recipient.
The OAS clawback withholding will bring total withholding up to 100% unless a return is filed to
substantiate that total worldwide income is low enough so that the clawback should not be applied.
It is evident that this system required non-residents to file what is in effect a return of world income
in order to qualify for OAS payments. The return is designated T1136 and called an Old Age
Security return of income. Where Canadian tax treaties limit the amount of tax that Canada can
impose on OAS payments, this would seem to override the 100% withholding requirement, and
Canada Revenue Agency somewhat grudgingly accepts this in the guide to form T1136.
For more information: https://www.canada.ca/en/revenue-agency/services/tax/international-non-

residents/individuals-leaving-entering-canada-non-residents/old-security-return-income-
oasri.html
Canada Pension Plan

The Canada Pension Plan is a contributory,
earnings-related social insurance program. It
ensures a measure of protection to a contributor
and his or her family against the loss of income
due to retirement, disability or death. With very
few exceptions, every person in Canada over the
age of 18 who earns a salary must pay into the
Canada Pension Plan.
An employee and employer each pay half of the

contributions. If an individual is self-employed,
he or she pays both portions of CPP.

Canada Pension Plan payments are taxable. There are five types of Canada Pension Plan
benefits:
Disability
Survivor Child Benefit
CPP
Retirement Death Benefit
Retirement Benefit: Canada Pension Plan retirement benefits are monthly payments paid on
retirement at the age of sixty-five or earlier. An early-retired person can also apply for CPP benefits
before sixty-five years of age at reduced benefit. Retirement pension is based on how much, and
for how long, a person contributed to the Plan.
Retirement pension is not started automatically. An individual has to apply to start receiving
Canada Pension Plan. The amount of retirement pension received appears in Box 14 of a T4A(P)
slip. Total amount of CPP benefits are shown in Box 20 of the T4A(P) slip which is reported on
Line 11400 of the Income Tax and Benefit Return. Individual can also elect to delay his/her CPP
benefits up to the age of 70.
An individual is eligible for a Canada Pension Plan retirement pension if he/she has made at least
one valid contribution (payment) to the Plan and the person is:
at least 65 years of age; or
Between the ages of 60 and 64 and have substantially or completely stopped working.
Age affects pension amount:

If taxpayer starts before age 65, payments will decrease by 0.6% each month (or by 7.2%
per year), up to a maximum reduction of 36% if started at age 60
If taxpayer starts after age 65, payments will increase by 0.7% each month (or by 8.4% per
year), up to a maximum increase of 42% if started at age 70 (or after).
Request retroactive payments

If you apply after you turn 65, you can get retroactive payments of the CPP retirement pension for
up to 11 months. The start date you choose to begin receiving your benefit will affect how much
you’ll receive each month. There are no retroactive payments for a CPP retirement pension taken
before age 65.

Note: If the taxpayer started receiving CPP in the year, the number of months for which the
taxpayer received CPP is very important in calculating CPP overpayment. This is the most
common mistake in data entry.
Example 4: Nadir’s monthly CPP benefits at age of 65 are $500 per month. How much would the
payments be if he chooses to take them at the early age of 60 or at the age of 70? Is it better for
him to receive benefits at age of 60 or 70? Calculate under new rule.
Answer: age 60 =$320 per month {$500 less 36% (0.6%×12months×5yrs)}

age 70 =$710 per month {$500 plus 42% (0.7%×12months×5yrs)}
When the client should start receiving CPP benefits, depends on the client’s financial situation as
well as on their health. Does he have enough income without CPP? How many years he is expected
to live? However, if you’d prefer to work less, or you want the money now to pay off debts or to
fund your retirement plans, you may choose to start receiving your pension before age 65. This
will result in a smaller monthly payment which can help meet immediate needs, especially if you
have little or no other income.
Survivor’s Benefits: Canada Pension Plan survivor benefits are paid to the deceased
contributor's estate, surviving spouse and dependent children. There are three types of benefits.
The death benefit is a one-time payment to, or on behalf of, the estate of a deceased Canada
Pension Plan contributor;
The surviving spouse's pension is a monthly pension paid to the surviving spouse of a deceased
contributor;
The children's benefit is a monthly benefit for dependent children of a deceased contributor.
Surviving Spouse’s pension: The survivor benefit is a monthly pension paid to the surviving
spouse of a deceased contributor. For a person’s survivors to be eligible, a taxpayer must have
made contributions to the Canada Pension Plan for at least three years. The Canada Pension Plan
surviving spouse's pension is paid to the person who, at the time of death, is the legal or common-
law spouse of the deceased contributor.
If an individual is a separated legal spouse and there is no cohabiting common-law spouse, that
individual may qualify for this benefit. The amount of surviving spouse's monthly pension
depends on:
How much, and for how long, the deceased person has paid into the Plan;
When the contributor died, surviving spouse's age; and
Whether surviving spouse is also receiving a Canada Pension Plan disability or retirement
pension.
The amount of surviving spouse’s benefit received appears in Box 15 of a T4A(P) slip. The total
amount of CPP benefits is shown in Box 20, which is reported on Line 11400 of Income Tax and
Benefit Return.

Example 5: Margaret’s husband Gary passed away last year. She received $1,900 for survivor’s
benefit. Margaret wants to know if she should report this benefit or it should be reported on Gary’s
final tax return.
Answer: Survivor’s benefit is taxable. Margaret has to report this as income on her tax return.
Survivor benefit is not reported on Gerry’s tax return but in the recipient’s tax return.
Disability Benefit: The Canada Pension Plan pays a monthly pension to people who have
contributed to the Plan and who are disabled according to Canada Pension Plan legislation. The
disability can be physical or mental.
Under the Canada Pension Plan legislation, disability must be "severe and prolonged". "Severe"
means condition prevents from working regularly at any job, and "prolonged" means condition is
long term or may result in death.
To qualify for a CPP disability benefit, a taxpayer must:

have a severe and prolonged disability as defined by the CPP legislation;
be under age 65;
have earned a specified minimum amount and contributed to the CPP while working for a
minimum number of years; and
have contributed to the CPP in four of the last six years at or above the minimum level of
earnings or in three of the last six years if you have contributed at or above the minimum
level of earnings for a least 25 years.
To remain eligible, taxpayer must continue to have a disability according to the CPP legislation.
The amount of disability benefits appears in Box 16 of a T4A(P) slip. Do not add the amount from
box 16 again as it is already included in Box 20 of a T4A(P) slip reported on Line 11400 of Income
Tax and Benefit Return
Tax Planning Tip: If the taxpayer is receiving CPP Disability benefit, they might also be eligible
for Disability Tax Credit. Most taxpayers are not familiar with the Disability Tax Credit. The
taxpayer must get T2201 signed by his/her doctor and approved by CRA. The taxpayer can also
go back to previous years and file a T1ADJ for disability Credit.
Child Benefit: The Canada Pension Plan provides basic benefits when a person with Canada
Pension Plan contributions becomes disabled, retires or dies. The children's benefits are a monthly
benefit for dependent children of a deceased contributor or disable parent who have contributed to
the Canada Pension plan. The child must be either under age 18, or between the ages of 18 and 25
and in full-time attendance at a recognized institution.
The Canada Pension Plan recognizes a school, college, university or other educational institution
that provides training or instruction of an educational, professional, vocational or technical nature.
Benefits are paid regardless of child’s income from other sources.
Any benefits paid for children must be included in children’s total income. For a student to be
eligible for one of the benefits, his/her parent or parents must have made sufficient contributions
to the Canada Pension Plan.

The benefit for the child of a disabled contributor is a monthly benefit paid to a natural or adopted
child of a Canada Pension Plan disability pensioner, or a child who is in the care and control of a
disability pensioner.
The benefit for the child of deceased contributor is a monthly benefit paid to a natural or adopted
child of a deceased Canada Pension Plan contributor, or a child who was in the care and control of
a deceased contributor at the time of death. Canada child benefit is indexed according to the cost
of living index. The amount of benefit received appears in Box 17 of a T4A(P) slip is reported by
the child on Line 11400.
Tax Tip: If the widower is claiming child as Eligible Dependant; make sure you take child’s
income into account while making the claim. Widowers will get the Canada Child Benefit. Since
the child is receiving CPP benefit, the eligible dependent amount will be lowered.
Example 6: Lane is disabled. Lane has twenty one-year-old son Joe. Joe is a full time student at
university. She received CPP child benefit for him. She has received the following slip. Who should
report this income?
Answer: Joe must report this as income on his tax return even though his mother received it.
Don’t report child benefit on Lane’s return. If Joe doesn’t have any other income there will not be
any tax payable. Joe would also qualify for GST/HST Credit.

Death Benefit: The Canada Pension Plan death benefit is a one-time, lump-sum payment made
to the deceased’s estate. But, normally it is often paid directly to the surviving spouse or other
surviving relative in charge of the deceased’s final expenses. If there is no estate, the person
responsible for the funeral expenses, the surviving spouse or the next of kin may be eligible, in
that order.
As with most Canada Pension Plan benefits, the amount of the death benefit depends on how much
and for how long, a person has paid into the Plan. The value of this benefit is equal to six times
the amount of the deceased contributor’s monthly retirement pension, to a maximum of $2,500.
These benefits are received as the result of the death of taxpayer. CPP death benefits are not the
income of deceased taxpayer. The estate must report this income or person who received the
benefits. The estate or executor has to apply to receive to receive the CPP death benefits.
Majority of individuals are not aware of this benefit. The amount of benefit received appears in
Box 18 of a T4A(P) slip. Total amount of CPP benefits is shown in Box 20 of a T4A(P) slip which
is reported on Line 13000 of Income Tax and Benefit Return.
Example 7: Ted’s father Stuart died last year on October 1st. Ted received death benefits of
$2,500.
a): Who should report this benefit?
b): Ted’s income for the year is $125,000. How can he minimize taxes on the death benefit?
Answer:
a): Death benefits are reported by the recipient. So, in this situation Ted will have to report death
benefit on his taxes. Ted would report death benefits on Line 13000 of his tax return.
b): Ted can choose to report the death benefits on his deceased father’s Trust (T3) return.

Example 7 (c): Should Ted file his father’s final tax return?
Answer: Yes; Ted should file his father’s final tax return. All the incomes, credits and deductions
would be reported on Stuart’s final tax return from January 1, till his date of death.
This is discussed in detail in Trust course.
Trust and Estate planning: There are numerous ways to minimize taxes upon
death. Softron provides a course in Trust and Estate planning which covers this
material in greater detail.
In the case of filing the deceased return, the following chart summarizes the major issues:
Deceased tax
return
Deceased's final GST Credits Income earned

tax return is filed cannot be claimed after the date of
until the date of on the deceased's death must be
death return. Certain declared on the
provinical credits optional returns.
are not allowed.
Lump Sum CPP Benefits

Sometimes, the government takes a long time to process CPP claims. Thus, an individual may
receive several years' worth of payments all at the same time when the claim is finally approved.
Since the income is taxed in the year that it is received, this will result in higher tax liability
compared to income being received over several years.
CRA allows taxpayers to elect to have CPP lump sum payment taxed as if it had been received in
the correct years responding to the claim. If the taxpayer makes this election, CRA will apply the
tax calculation that benefits the taxpayer most.
The taxpayer prepares the tax return in the usual way by declaring the entire lump sum benefit in
the year that it is received and calculating the tax in the normal fashion. The taxpayer attaches the
letter received from Service Canada with the Tax return. The CRA will process the tax return that
has the most beneficial impact on the taxpayer.
CRA will determine whether it is beneficial to tax the prior year benefits at the prior year rates or
to tax the entire amount at the current year rates.

If prior year rates are more beneficial to the taxpayer, then CRA will make an adjustment that will
lower the current year tax liability and make adjustments to prior years' tax returns.
This type of return should be paper filed and processing of this type of tax return is slow. The
return should not be filed electronically.
Overpayments of CPP Benefits
In certain situations, a person may have received Canada or Quebec Pension plan in error in the
year or earlier years. Where the person has to repay those amounts in the year for which his or her
T1 is filed, the person may claim deduction on line 23200 for the amounts repaid to the extent they
were included in his or her income in earlier years.
Service Canada will deduct overpayments from the monthly benefit cheque. The total amount of
benefits will be reported on T4A(P) box 20. However, Service Canada will issue a letter stating
the amount of overpayments that can be deducted on the tax return.
Canada Pension Plan Payment Rates
Canada Pension Plan rates are adjusted every January to reflect the increase in cost of living as
measured by the Consumer Price Index. The table below lists the maximum and average monthly
rates for Canada Pension Plan benefits and the maximum death benefit.
Canada Pension Plan Payment Amounts Jan -Dec 2020
Average amount for

Maximum amount
Type of pension or benefit new beneficiaries
(2020)
(January 2020)
Retirement pension (at age 65) $696.56 $1,175.83
Post Retirement benefit (at age 65) $13.89 $29.40
Post Retirement disability benefit $505.79 $505.79
Disability benefit $1010.57 $1,387.66
Survivor’s pension – younger than 65 $453.59 $638.28
Survivor’s pension – 65 and older $311.33 $705.50
Children of disabled CPP contributors $255.03 $255.03
Children of deceased CPP contributors $255.03 $255.03
Death (maximum one-time payment) $2,494.01 $2,500.00
Combined benefits:
Survivor’s and retirement pension (at age 65) $902.70 $1,175.83
Survivor’s pension and disability benefit $1,143.31 $1,387.66

CPP Assignment: Assignment, or "pension sharing", is for spouses or common-law partners who
are together (not separated or divorced) and who are receiving their
Canada Pension Plan retirement pension(s). With assignment, each
spouse or common-law partner can receive a portion of the other's
pension, if they choose to share in this way. It does not increase or
decrease the overall benefits paid.
If only one spouse or common-law partner has contributed to the

CPP, the pension sharing provision can still be used. The
contributions of the sole contributor made during the period they
lived together can be divided into two equal payments.
Each spouse or common-law partner pays income tax on the amount received.
Note: Old age and Canada Pension or Quebec Pension Plan Payments do not qualify for pension
splitting. Don’t confuse Pension splitting with Pension sharing.
Changes to CPP contribution rules
Previous rules
Before January 1, 2012, an employer had to stop deducting CPP contributions from an employee’s
pensionable earnings when the employee:
was 60 to 70 years of age
gave proof that he or she was receiving a CPP or Quebec Pension Plan (QPP) retirement
pension (for example, an award letter issued by Employment and Social Development
Canada)
New rules
Since January 1, 2012, an employer may have to deduct CPP contributions from the pensionable
earnings paid to an employee who is 60 to 70 years of age, even if the employee is receiving
a CPP or QPP retirement pension.
Under the new rules, an employee who works and receives a CPP or QPP retirement pension has
to contribute to the CPP if he or she is:
60 to 65 years of age
65 to 70 years of age, unless the employee has filed an election with employer to stop
paying CPP contributions (the election will take effect on the first day of the month
following the month the employee provides employer with a completed and signed election
form)
65 to 70 years of age, if the employee revoked his or her election to stop
paying CPP contributions
For more information: https://www.canada.ca/en/revenue-

agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-
plan-cpp/changes-rules-deducting-canada-pension-plan-cpp-contributions.html
See the attached form CPT30.

Veteran Disability Pensions – TAX FREE
Canadians may be eligible for disability pension benefits if they
have a permanent disability resulting from an injury or disease that
was attributable to, incurred during, or aggravated by service during
the First World War, the Second World War, the Korean War or a
Special Duty Area (SDA).
Canadians may also be eligible for a disability pension if they have

a permanent disability that arose out of, was aggravated by, or is
directly connected with peacetime Regular or Reserve Force service
in the Canadian Forces.
Disability pensions provided by Veterans Affair Canada under the

Pension Act are tax-free in Canada. The Department does not issue Tslip for this income and the
taxpayer is not required to report VAC disability pension income on the income-tax return.
Other Pensions and Superannuation
Superannuation or pension benefits are taxable. Pension benefits will generally qualify for the
pension tax credit and are eligible for pension splitting with spouse.
Annuity: An annuity is a series of income payments or receipts made yearly or at regular intervals.
An annuitant is the recipient or beneficiary of an annuity. There are many types of annuities and
the type of annuity determines the income tax treatment. Annuities are designed to include all
amounts payable on a periodic basis whether payable at intervals longer or shorter than a year and
whether payable under a contract or will.
The method of taxing annuity income changed with the introduction of income accrual rules for
life insurance policies and annuities. Seniors usually receive various types of pensions beside OAS
and CPP. Pension income from all the sources is taxable.
Registered Pension Plan (RPP)

Income
This is a company pension plan that has been registered with
Canada Revenue Agency. It is a plan where funds are set aside by
an employer, or by an employer and employees, to provide a
pension to employees when they retire. RPP pension income is
reported on a T4A slip. An employee can receive these payments
in two different ways:
RPP Periodic Payments: Periodic payments of RPP pension

income are generally received in the form of a monthly “Company pension”. An employee can
also apply for an early retirement. Periodic payments of RPP appear in Box 16 of the T4A slip.
Enter the amount from Box 16 on Line 11500 of the Income Tax and Benefit Return.

Example 8: Ricardo is retired teacher. He received T4A slip from peel board of education. Where
would you report this income? Is pension income taxable?
Answer: Pension income is taxable and reported on Line 11500. However, Ricardo will be eligible
for pension credit of $2,000 on Line 31400 of Part A Federal non-refundable tax credits and
$1,463 on Ontario tax form.

RPP Lump-sum payments: Lump-sum payments of RPP pension income are generally received
in a large sum. If an employee qualifies, he/she may choose to transfer the sum to registered plans.
In this case he/she will receive a RRSP contribution slip. Lump-sum payments of RPP appear in
Box 18 of the T4A slip. Enter the amount from Box 18 on Line 13000 of the Income Tax and
Benefit Return.
Deferred Profit Sharing Plan

A profit sharing plan is an arrangement under which an
employer shares with all or a group of employees the
profits from the employer’s business. A deferred sharing
plan is profit sharing plan that is registered by Canada
Revenue Agency. Contributions are taxable in the
employee’s hands when the benefits are distributed.
The contributions in the plan grow tax-free unless paid out.

Generally, DPSP becomes “vested” in an employee if an
employee works for employer for a number of specified years. These vested benefits must be paid
out to the employees within 90 days after employee leaves job, turns 71 or dies.
Taxable amount from the T4A slip is reported on Line 11500 of the return. The taxpayer can
receive a lump sum from the taxpayer’s DPSP, and transfer all or some of it to:
Taxpayer’s RRSP;
The taxpayer’s RPP; or
The taxpayer’s another DPSP plan.
The transfer must be done directly from one plan to another designated plan. If the money is
transferred directly between registered plans, the taxpayer does not have to report this as income.
If the funds are paid to the taxpayer, then the taxpayer has to include such payments as income and
the funds cannot be transferred on tax-free basis to another registered plan.
Foreign Pension
A pension received from a foreign country is fully
taxable in Canada unless Tax Act excludes it from
income or a tax treaty modifies the tax treatment.
Excluded Pensions: Pensions excluded from

income by the Tax Act are not reported for income
tax purposes at all. These include foreign pensions
paid on account of disability or death arising out of
war or military service, if the foreign country was a
Canadian ally.

Exempt Pensions: Pensions exempt from taxation in Canada under various tax treaties, either in
whole or in part, are included in income on Line 11500, and an offsetting deduction is claimed for
the exempt portion on Line 25600. Thus, the exempt portion is included in net income, but not in
taxable income.
Before applying tax treaty provision, it is very important to know the type of foreign pension
received by an individual, i.e. employment pension, social security etc.
The pension tax credit may be claimed for foreign pensions, if the pensions are taxable in Canada.
Example.9: Chris received military pension income of $10,000 (CDN) from Germany. Where
would you report this on his tax return?
Answer: Military pension from Germany is not taxable in Canada.
Tax Treaties:
The treaties distinguish benefits received under social security legislation and pensions received
from other sources. The tax treatment can be summarized as follows:
1) If the income is subject to tax in both the countries (source country and Canada), then, the
income is reported on Line 11500, and is eligible for the pension credit.
A foreign tax credit may be claimed for any tax withheld by the foreign country, so long as it
does not exceed the treaty rate.
2) If the income is exempt from tax in the source country but taxable in Canada, then the income
is reported on Line 11500, and is eligible for pension credit. No foreign tax credit can be
claimed, since no foreign tax was paid.
3) If the income is taxable in the source country but exempt (or partially exempt) in Canada, then
the income is reported on Line 11500 and the exempt portion is deducted on Line 25600. Only
the taxable portion is eligible for the pension credit. A foreign tax credit can be taken only on
the portion taxable in Canada.
Certain types of pension from the U.S., Italy, Austria, Germany and Belgium are subject to
special treatment.
U.S. Social Security Benefits
U.S. Social Security benefits paid to a resident of Canada are fully exempt from tax in the United
States, and are only partially taxable (85%) in Canada. On the Canadian tax return, the full benefits
are reported as pension income on Line 11500, and a deduction of 15% of this amount is claimed
on Line 25600. The portion of the benefits that is taxable (i.e., 85% of the benefits received)
qualifies for the pension income amount. Since no foreign tax is payable on these benefits, a
foreign tax credit cannot be claimed. Remember the 85% of U.S. Social benefits should be eligible
for pension credit.

Example 10: Sonia is Canadian resident. She receives US social security (since 1999) of $5,000
(CDN).Where would she report this income on her tax return?
Answer: Sonia would report $5,000 on Line 11500 and claim deduction of $750 on Line 25600.
Foreign Pension of $4,250 will be eligible for pension credit. (Maximum pension credit = $2,000).
Under the Canada-U.S. tax treaty, you can claim a deduction equal to 15% of the U.S. Social
Security benefits, including U.S. Medicare premiums, you included in your income on line 11500.
If a taxpayer has been a resident of Canada and has received U.S. Social Security benefits
continuously during the period starting before January 1, 1996, till present then he or she can claim
a deduction equal to 50% of the U.S. Social Security benefits, received in current year.
Italian Social Security Pensions
Social Security pensions from the Italian Istituto Nazionale della Previdenza Sociale (INPS) may
consist of three different components, all of which are handled differently for tax purposes:
1) A portion based on contributions paid during employment in Italy;
2) A portion based on contributions credited for military service; and
3) A supplement based on the pensioner’s income.
Pension Income-Related to Employment: The portion related to employment is always taxable

in Canada.
Pension Income-Related to Military Services: The portion related to military service is

excluded.
Supplement-Related to Pensioner’s Income: The supplement is exempt from tax in Canada if

the taxpayer’s net income (without the supplement) is $24,000 or less; otherwise full amount of
pension would be taxable.
A taxpayer who receives a social security pension from Italy will receive a statement from the
INPS identifying the source of the benefits. Read this Italian form carefully to report taxable
benefits.
Foreign Tax Credit: The client must have proof of foreign tax paid when claiming foreign tax
credit on Canadian tax return.
Tax Treaty Deduction: Tax treaty deduction will be claimed on line 25600.
Documents: The taxpayer has to keep the proof of foreign tax withheld and types of foreign
pension received and submit to CRA if requested.

Registered Retirement Savings Plan Income
RRSP is a tax-deferral plan set by an individual for self or spouse.

When a taxpayer makes contributions to RRSP he is allowed a
deduction on Line 20800 based on the contribution limit. Funds
accumulate tax-free in the plan until withdrawn. The age limit for
contribution to RRSPs is 71. Taxpayers must make arrangements to
convert their RRSP funds to a RRIF or annuity by the end of the year
in which they turn 71, or else the full value of the RRSP will be
included in their income for the following year.
RRSP Annuity Payments
Annuity payments from an RRSP are paid out over number of years rather than in a lump sum. A
taxpayer may choose to do so to minimize tax. Total annuity payments received during the year
appear in Box 16 of a T4RSP slip. This income is reported on Line 12900 of the Income Tax and
Benefit Return.
Other RRSP Payments
RRSP annuity is only one kind of payment made from RRSP. RRSP’s that have not matured
(which have not been converted to annuity) could also provide income. This income is reported on
Box 18, 20, 22, 26 or 34 on T4RSP.
Refund of Premiums to Spouse (Box 18)
If a plan holder dies, special rules come into play to govern the taxation of assets in the plan.
Essentially, if the plan has not matured, the assets may be left to a surviving spouse and taxed to
the surviving spouse rather than the deceased plan holder or his or her estate.
These assets so paid to the spouse are referred to by definition as “refund of premiums” and the
surviving spouse may roll forward all or any part of the refund of premiums into their own RRSP’s
tax-free.
This amount appears in Box 18 of T4RSP slip, which must be reported on Line 12900 of Income
Tax and Benefit Return. The corresponding deduction for transfer can be claimed on Line 20800
of the tax return. This income is declared on surviving spouse’s tax return not on deceased's tax
return.
If there is no surviving spouse, any payments paid out of RRSP to a dependant child or grandchild
under 18 is taxable in the hands of recipient. Such amounts may be eligible for rollover to special
annuity consisting of equal annual annuity payments until the child reaches age 18. Transfer of
RRSP payments upon death are discussed in more detail in advanced course.

Refund of Excess Contributions (Box 20)
Refund of Excess Contributions is withdrawals of excess contributions that, the taxpayer couldn't
or chose not to deduct on Line 20800 in any taxation year. This amount appears in Box 20 of
T4RSP slip, which must be reported on Line 12900 of T1-General.
A taxpayer is entitled to a corresponding deduction on Line 23200 of the return. Canada Revenue
Agency must certify the amount that can be withdrawn tax-free since there was never a
corresponding deduction. Usually the bank charges a withholding tax on RRSP withdrawals.
However, there is no withholding if there is T3012 form signed by CRA.
Withdrawal and Commutation Payments (Box 22)
These are all regular withdrawals made by taxpayers from an RRSP. The amount of withdrawal
made appears in Box 22 of T4RSP slip. The financial institutions are required to withhold tax
before releasing the funds as follows:
Withdrawal made up to $5,000 – 10%

Withdrawal made between $5,000 and $15,000 – 20%
Withdrawal made over $15,001 – 30%
This income is reported on Line 12900 of the INCOME TAX AND BENEFIT RETURNeneral. A
taxpayer is entitled to a deduction for tax withholdings. Usually the tax withheld from T4RSP slip
is not adequate and taxpayer has to pay additional taxes in the year of withdrawal. These extra
taxes are paid when the taxpayer files his/her taxes.
Example 11: Lucy Loretta withdrew funds from her RRSP. The financial Institution deducted taxes
from her RRSP. Lucy wants to know if she still needs to declare RRSP withdrawals on her tax
return even though taxes were deducted when she cashed her RRSP’s.
Answer: Lucy must report RRSP withdrawals. Regardless of what taxes are paid at the time of
withdrawal, she has to pay taxes on this withdrawal based on her marginal tax rate. When she
originally contributed to RRSP, she must have claimed that amount as deduction on her tax return.
Since, Lucy has withdrawn money from RRSP’s, she has to include this as income on her tax return
and she will also get a credit for the tax withheld.

Withdrawal of Spousal RRSP Plans (Box 24)

The word “spousal RRSP” means the plan from which funds are withdrawn is a spousal plan.
Financial institutions express this by putting “Yes” in Box 24. Name and Social insurance number
of the spouse appears in Boxes 38 and 36.
If the funds are withdrawn from spousal RRSP before the three year period limit, the withdrawn
funds are taxable in the hands of contributor. If the funds are withdrawn after the three-year period
limit (from the last contribution to the spousal plan), then the funds are taxable in annuitant's
(spouse) hands.
Tax Tip: You must be careful reading RRSP receipts to ensure that only the contributor gets the
RRSP deduction and not the annuitant.
Other Income or Deductions (Box 28)
If the amount in Box 28 of T4RSP slip is positive, report on Line 12900 of the tax return. If amount
in Box 28 is negative, report on Line 23200 as a deduction.
Registered Retirement Income Fund (RRIF)
Registered Retirement Income Fund is a plan set up to provide

income upon retirement. Seniors must withdraw minimum
amount every year. The calculation of minimum amount is
based on a declining method. Amounts received by a taxpayer
as an annuitant under a RRIF are taxable. These plans are an
alternative to annuity or lump sum payments on maturity of
RRSP. These funds are subject to same provisions of RRSPs
with respect to the acquisition of non-qualified investment.
RRSP/RRIF Losses after Death: If this result decrease in the value of an unmatured RRSP or
RRIF between date of death and date when final distribution happens to the beneficiary or estate
the decrease can be deducted on the deceased’s final return.
Tax Tip: If the value of RRIF decreases after the time of death up until the final distribution, the
deduction can be claimed on the deceased last return.
Taxable Amounts: This is the taxable amount paid to an annuitant. The amount in Box 16 of
T4RIF includes minimum amount and any excess amount that the recipient received under the
terms of the fund. The excess amount is also shown separately in box 24 of the slip. The amount
from box 16 is reported on Line 11500 of the Income Tax and Benefit Return.
Excess Amount: Any amount withdrawn by a taxpayer over the minimum amount is called an
“excess” amount. Excess amount appears in box 24 of a T4RIF slip. This amount is already
included in box 16 and reported on Line 11500.

Minimum amount of withdrawal from RRIF is mandatory starting at the age of 72. Minimum
amount is set to meet the needs of plan holder, i.e. monthly expenses. The taxpayer can withdraw
more than minimum amount.
Amounts Deemed received by the Annuitant on Death: Upon death of a RRIF annuitant, the
fair market value of the plan is deemed to be received by the deceased prior to death. The amount
in Box 18 of the T4RIF slip represents FMV of the plan at death. This amount is reported on Line
13000 of the Income Tax and Benefit Return. However, if there is a surviving spouse or dependant
child or grandchild, part or all of the income may be reported on a beneficiary’s return.
Deemed Receipt on Deregistration: “Deregistration” means plan no longer meets the rule under
which it was registered. The amount which equals to fair market value of the plan is deemed to be
received by a taxpayer immediately before deregistration.
This amount appears in Box 20 of the T4RIF slip. The amount is reported on Line 11500 or 13000
according to “Reporting guide for Retirement income”.
Other Income or Deductions: If the amount in Box 22 of the T4RIF slip is positive, the amount
is reported on Line 13000 of the Income Tax and Benefit Return. If the amount is in brackets,
then this indicates that amount is negative and is deducted on Line 23200 of the Income Tax and
Benefit Return.
Amounts in Box 22 represent acquisition and disposition of the property in the plan. It is income
earned after the death of the annuitant other than beneficiary spouse.
If a RRIF holder dies, the remaining benefits under the arrangement may pass to others under the
terms of the will arrangement. If these benefits pass to the plan holder’s spouse, the yearly
payments may continue, and the spouse will pay tax on the payments as they are received. If the
property in the plan passes on the death of the plan holder to a person other than spouse, the fair
market value of the property in the plan immediately before his or her death must be included in
the plan holder’s income.
Transfer on breakdown of marriage or common-law partner: The amounts transferred under

a decree, order or judgment of a competent tribunal or a written agreement regarding the separation
of property between the taxpayer and current or former spouse or common-law partner in order to
settle the rights arising upon the breakdown of the union are entered in box 35. If this is the case,
Form T2220, Transfer from an RRSP or a RRIF to Another RRSP or RRIF on Marriage
Breakdown, is used to document the facts of the transfer.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-retirement-
income-fund-rrif.html
Example 12: Suri Smith is widowed. She is 72 year old. Her only source of income is from her
Registered Retirement Income Fund (RRIF). She received the following slip from Manulife. Where
would you report this slip on her taxes? Assume she has no other credits to claim.

Answer: The excess amount from box 24 is already included in box 16 of T4RIF.
Income Tax and Benefit Return shows the appropriate line numbers.
You must be careful when using tax software to ensure that the excess amount (Box 24) is entered
in correct T4RIF Box 24 of software. Most software distinguishes the Box 24 into 3 different
categories:
1) Excess amount cashed

2) Excess amount transferred to RRSP
3) Excess amount transferred to RRIF/Annuity
In most cases, the excess amount is usually cashed. This is a common mistake when entering on
software. Make sure you choose the correct box.

Canadian Resident Working in US: A resident of Canada who works in the U.S. and is a member
of qualifying retirement plan in U.S. can deduct contributions on Canadian tax return. This is
applicable for 2009 and later years. Complete RC268 along with your tax return.
Pension Credit
Seniors receive pensions from various sources other than Canada Pension
Plan (CPP) and Old Age Security (OAS). Pension income is reported on
Line 11500, 12900 or 13000. Some types of pension income may qualify
for the pension credit and some do not. Pension credit is non-refundable
tax credit claimed on Line 31400 of Part A Federal non-refundable tax
credits and also on Ontario Tax. The maximum federal pension amount
credit is $ 2,000 for the year. The maximum Ontario pension credit
amount is $1,463. Pension credit is claimed against pensions, which are
taxable in Canada.
Pension Income eligible for Pension Credit

• Registered Retirement Income Fund (RRIF) annuity;
• Registered Pension Plan (RPP) annuity;
• RRSP or RRIF annuity for the taxpayer age of 65 or older;
• Registered Retirement Income Fund (RRIF) deregistration;
• Annuities from T4A slip.
Pension Income NOT eligible for Pension Credit

• Old Age Security pension;
• Canada Plan Pension;
• Retiring allowance;
• RRSP or RRIF lump sum for the taxpayer age of 65 or older;
• Death benefits; and
• Lump Sum payments from DPSP and RPP.
Note: If a taxpayer does not need pension credit to reduce federal income tax to zero, the unused
part can be transferred to spouse.
Pension Income Splitting

Starting from 2007 Canadian residents were allowed to allocate up to one-
half of their income that qualifies for the existing pension income tax
credit to their resident spouse (or common-law partner) for income tax
purposes.
The amount allocated is deducted on line 21000 of Income Tax and

Benefit Return in determining the net income of the person who actually
received the pension income, and it is included on line 11600 of Income
Tax and Benefit Return in computing the net income of the spouse or
common-law partner. Pension splitting affects the calculation of income and tax payable for both
persons, so they must both agree to the allocation in their tax returns for the year in question.

Eligible Pension
Eligible pension income is generally the total of the following amounts received by the pensioner
in the year (these amounts also qualify for the pension income amount):
• the taxable part of annuity payments from a superannuation or pension fund or plan; and
• if received as a result of the death of a spouse or common-law partner, or if the pensioner is age
65 or older at the end of the year:
• annuity and registered retirement income fund (including life income fund) payments; and
• Registered Retirement Savings Plan annuity payments.
Note: Old Age Security and Canada or Quebec Pension Plan payments do not qualify for
pension splitting.
A pension recipient (pensioner) and his or her spouse or common-law partner can elect to split the
pensioner's “eligible pension income” received in the year if:
they are married or in a common-law partnership with each other in the year and are not,
because of a breakdown in their marriage or common-law partnership, living separate and
apart from each other at the end of the year and for a period of 90 days commencing in the
year; and
they are both resident in Canada on December 31; or
o if deceased in the year, resident in Canada on the date of death; or
o if bankrupt in the year, resident in Canada on December 31 of the calendar year in
which (pre- or post-bankruptcy) ends.
Note: The pensioner and his/her spouse or common-law partner will still be eligible to split
pension income if living apart at the end of the year for medical, educational, or business reasons
(rather than a breakdown in the marriage or common-law partnership).
The income tax that is withheld at source from the eligible pension income will have to be allocated
from the pensioner to the spouse or common-law partner in the same proportion as the pension
income is allocated.
The pensioner and his/her spouse or common-law partner must complete Form T1032, Joint
Election to Split Pension Income, to determine the amount of the pension that pensioner wants to
split.

Example 13: Wayne Reid (55 years) and Suzy Reid (50 years) are married. Wayne’s only source
of income is company pension of $82,000 and tax deducted is $18,040. Suzy does not have any
income. Wayne wants to split his pension income with Suzy. How much can he split?
Answer: Wayne can split up to maximum of 50% of eligible pension income. The age is irrelevant
in pension splitting. The form T1032 must be signed by both parties. There are substantial tax
savings through pension splitting. See attached completed forms.
Important things to be noticed:
Most tax software’s have the ability to optimize and calculate pension splitting. The Tax
accountant has the responsibility to ensure that the following issues are taken into account when
doing Pension Splitting:
1: Tax brackets of spouses;
2: OAS Repayments;
3: Pension Income Credit;
4: Wishes of the taxpayer;
5: Age Amount;
6: Provincial Rates and health premiums;
7: Other Investment Income;
8: Other credits such as Disability; and
9: Nursing home and other type of elderly care which may be subsidized due to income.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html
The deadline for filing a split pension election is December 31st of the third calendar year after
the filing deadline of your income tax return. Subsection 152(4) and (4.2) of the income tax act,
does not permit the Minister to reassess the pension transferee after the normal reassessment
period if it results in tax payable.

Instalment Payments
Instalment rule looks back to two preceding years as well as the
current year in determining current year liability. If a taxpayer has
recurring income which is not subject to withholding tax, that is,
income from which no deductions have been taken by the payer and
remitted to CRA on taxpayer’s behalf, the taxpayer may be required
to pay instalments. The taxpayer has to pay the income tax by
instalments for 2019, if the taxpayer’s net tax owing (as explained
below) is more than $3,000:
in 2019; and
in either 2018 or 2017.
The net tax owing is the total tax payable on line 43500 of Income Tax and Benefit Return.
(not including the amount on line 42100) less total of line 48200 (not including the amounts on
lines 44800, 45000, 45700 and 47600 of Income Tax and Benefit Return.

The most common type of individuals required to make instalments payments are;
Senior citizens; and
Self-employed.
If the taxpayer had a tax liability for previous two years, CRA will automatically send instalment
reminders for each quarter in the year. Failure to pay instalments will incur interest from the time
the instalments are due. When federal and provincial instalment payments are $25 or less, the
obligation to pay interest on late and deficient tax instalments for the year is eliminated. The
Income Tax Act imposes penalty and interest charges where a quarterly instalment is underpaid or
paid late to the Receiver General. For example within one month after the end of each fiscal quarter
ending in the reporting period, the person will be required to pay, on the amount of the instalment
not paid:
a) a penalty; and
b) Interest at the prescribed rate.
Penalty and interest on the unpaid amount of an instalment are calculated for the period beginning
on the first day following the day on which the amount is due and ending on the earlier of:
a) the day the total of the amount, penalty and interest is paid, and
b) the day on or before which the tax on account of which the instalment is payable is required
to be remitted (i.e., within three months after the end of the fiscal year).

Prepaying or overpaying other instalments for the reporting period can reduce penalty and interest
on late or deficient instalments. Penalty and interest amounts outstanding after the remittance due
date are deemed to be amounts not remitted and are therefore subject to penalty and interest in the
normal manner as of that time. In addition to the interest described above on late or deficient
instalment payments, a penalty of 50% of interest charged in excess of:
a) $1,000 or
b) 25% of interest that would have been paid calculated as if no instalments had been made.
Thus, this penalty can only apply where the interest on instalment shortfall reaches a threshold of
$1,000.
Current year method: Calculation of a taxpayer’s instalment payments using current year
method requires an accurate estimate of all income and deductions that will be needed when the
tax return for current year is completed. This method is advantageous to taxpayers whose income
is lower than prior year’s income. This method should only be used if the taxpayer has all the
figures for current year’s income and deduction. If the taxpayer’s estimate of income is too low,
and this results in instalment payments that are insufficient, then the taxpayer may be liable for
penalties and interest on deficient instalment payments. To calculate the instalment payments using
current year’s method, first work out the net tax owing as explained above and add any CPP
contribution payable as per line 42100 of the Income Tax and Benefit Return for the total
instalment amount due.
Prior year method: To calculate taxpayer’s instalment payment using this method, first work
out the net tax owing as explained above and add any CPP contribution payable as per line 42100
of the Income Tax and Benefit Return for the total instalment amount due.
This method should not be used, if current year’s income is less than prior year’s return.
Example 14(a): George’s total tax payable for the current tax year is $10,000; last year tax
payable was $8,000. For each year, the tax withheld at source is $2,000. Since the difference
between the amount withheld and his total payable exceeds $3,000 for both current and previous
year, George is required to make quarterly instalment payments. Calculate his quarterly
instalment under each current and prior year method.
Answer: (a) Current year Method: If George uses the current year method, his instalment will be
based on his current year taxes. The total amount due will be $8,000 ($10,000-$2,000). George
will be required to make quarterly instalment of $2,000, beginning on March 15th.
Prior year Method: if he uses the prior year method, his instalment will be based on his prior year’s
return. The total amount due will be $6,000 ($8,000-$2,000). George will be required to make
quarterly instalment of $1,500.
If George uses prior year method, he will have to pay the remaining $2,000 by April 30. There will be
no penalties as long as this amount is paid by April 30th.

Example 14 (b): What if George had an unexpected decrease in business and his tax payable
became zero for next year? Discuss the implications. Does he still have to pay the instalment?
Answer: (b) If George is certain about his tax payable for next year, then he doesn’t have to pay
tax instalment. He can disregard the instalment reminders from CRA. He will not be liable for
instalment penalty or interest since his tax payable at the end of the year is expected to be zero.

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-
partnerships/instalment-payments.html
Information Slips
T4A(OAS)
STATEMENT OF OLD AGE SECURITY
Box 18 - Taxable pension paid The net amount of any allowance, allowance
Enter this amount on line 11300 of your for the survivor, or guaranteed income
return. supplement you received in the year.
Box 19 - Gross pension paid Enter this amount on line 14600 of your
The gross amount of Old Age Security return. If the amount is negative enter "0".
pension you received in the year. You may also be able to deduct it on line
Box 20 - Overpayment recovered 25000 of your return.
The amount recovered from the gross Old Box 22 - Income tax deducted
Age Security pension amount in box 19 Enter this amount on line 43700 of your
because of an overpayment you received in a return.
previous period. Box 23 - Quebec income tax deducted
Enter this amount on line 23200 of your Report this amount on your Quebec
return. provincial return.
Box 21 - Net supplements paid If you were not a resident of Quebec on
December 31, enter this amount on line
43700 of your federal return.

T4A(P)
Statement of Canada Pension Benefits
Box 13 - Onset or effective date

For a disability benefit, this is the date Service Canada determined that you were disabled for CPP
purposes. For a retirement benefit, this is the date the benefit became payable.
Box 14 - Retirement benefit
This amount is included in the amount shown in box 20.
Box 15 - Survivor benefit
This amount is included in the amount shown in box 20.
Box 16 - Disability benefit
Enter this amount on line 11410 of your return.
This amount is already included in box 20. Do not add it to your income on your return.
Box 17 - Child benefit
This amount is already included in box 20.
Box 18 - Death benefit
Box 19 - Post-retirement benefit
Box 20 - Taxable CPP benefits
Box 20 includes any benefits shown in boxes 14, 15, 16, 17, 18, and 19. Do not add the amounts
from those boxes to your income on your return. It also includes any recovery of Canada Pension
Plan overpayments or payments for arrears.
Box 21 - Number of months - disability
Number of months excluded from your CPP contributory period due to disability.
Box 22 - Income tax deducted
Box 23 - Number of months - retirement
Number of months that you received Canada Pension Plan (CPP) retirement benefits.
If you are an individual who is 60 to 70 years of age, read Canada Pension Plan (CPP) contributions
for CPP working beneficiaries.

T4RIF
Box 16 – Taxable amounts

This is the amount of taxable payments received in the year. For information on where you enter
this amount on your return, see line 11500.
Box 18 – Deceased
This is the fair market value of all the property held by the RRIF at the time of the annuitant's
death. For more information on how to report this amount, see Guide T4040, RRSPs and Other
Registered Plans for Retirement.
Box 20 – Deregistration
This is the fair market value of all the property held by the RRIF just before the RRIF became an
amended fund. For information on where you enter this amount on your return, see line 11500.
Box 22 – Other income or deductions
If you received the income from a deceased annuitant's RRIF and you are either 65 years of age or
older, or the beneficiary spouse or common-law partner of the deceased, enter this amount on line
11500 of your return. Otherwise, enter any income amounts on line 13000 and any deductions
(amount shown in brackets) on line 23200 of your return.
However, if the amount was rolled over from a deceased annuitant's RRIF to a registered disability
savings plan, enter this amount on line 13000 and line 23200 of the deceased's return. Form
RC4625, Rollover to a Registered Disability Savings Plan (RDSP) under Paragraph 60(m), must
be attached to the deceased's return. If you are an eligible individual, enter the amount of the
rollover on line 13000 and the amount transferred on line 23200 of your return. For more
information, see Information Sheet RC4178, Death of a RRIF Annuitant or a PRPP Member.
Box 24 – Excess amount
This is the taxable part of amounts received in the year that is more than the minimum amount.
This amount is already included in box 16. Only report the box 16 amount on your return, if the
amount received relates to RRSP contributions you could not deduct from income, you may be
able to claim an offsetting deduction on line 23200. For more information, see Form T746,
Calculating Your Deduction for Refund of Unused RRSP, PRPP, and SPP Contributions.

Box 26 and 32 – Spousal or common-law partner RRIF
If Yes appears in box 26, or if the SIN of the contributor spouse or common-law partner is in box
32, the contributor spouse or common-law partner may have to include in income part or all of the
amounts in boxes 20 or 24, if any. For more information, see Form T2205, Amounts from a
Spousal or Common-law Partner RRSP, RRIF or SPP to Include in Income.
Box 28 – Income tax deducted
Box 30 – Year/month/day
This is the RRIF annuitant's date of death.
Box 35 – Transfers on breakdown of marriage or common-law partnership
This is the amount directly transferred on breakdown of a marriage or common-law
partnership. This amount is not included in income.
Box 36 – Tax-paid amount
This amount is used to calculate the amount that has to be reported on the final return of the
deceased annuitant. For more information, see Guide T4040, RRSPs and Other Registered Plans
for Retirement.

Summary
Taxpayers living in Canada

Old Age Security Taxpayer must be 65 and Canadian Citizen/legal resident at the time
the pension is approved. The taxpayer has lived in Canada as an adult
for at least 10 years.
Taxpayers living outside Canada
Taxpayer must be 65 and Canadian Citizen/legal resident at the time
when he left the country. The taxpayer should have lived at least for
20 years in Canada as an adult.
15% Old Age Security is to be paid back when the net income exceeds
$77,580 (subject to the maximum pension received).
Net Federal Supplement Guaranteed Income Supplements are available to:

Individuals who are in receipt of Old Age Security benefits; and
who have low to modest income. These benefits are provided to
supplement senior's income.
Spouse's allowance is available to:
Widow/widower who are between the age of 60 and 64; and
must have lived in Canada for at least 10 years after turning 18.
Net Federal Supplement is not taxable, but included in the calculation
of net income.
Canada Pension Plan Retirement Benefit

Benefits CPP retirement benefits are taxable.
The taxpayer is eligible to receive CPP benefits based on the
contributions made to Canada Pension Plan.
Disability Benefit
The taxpayer can apply for CPP disability benefits between the age of
18 and 65. The taxpayer must have contributed to CPP for a minimum
number of years.
Survivor's Benefit
The amount of benefit depends on how much and for how long the
contribution to the plan was made by the deceased.
Child Benefit
The benefit is paid to the child of the deceased or the
disabled individual.
It is paid to child up to the age of 18 or 25 if the child is studying at a
full time recognized institution.
The benefit is paid regardless of the child's other sources of income.

Death Benefit
It is taxable in the hands of the recipient or the estate of the deceased.
The maximum death benefit is $2,500.
Foreign Pension Foreign Pension is fully taxable in Canada unless the income tax
act excludes it or the different treaty treatment is specified.
Pensions excluded under the Act are not reported on the tax return.
Pensions which are exempt under the tax treaty are included as income
on line 11500 and an offsetting deduction may be claimed on
line 25600.
Instalment Payments The taxpayer may be required to pay instalment payments if the
tax liability for prior 2 years was $3,000 or more.
Pension Income splitting Canadian residents are able to allocate up to one-half of their income
that qualifies for the existing pension income tax credit to their
resident spouse (or common-law partner) for income tax purposes.
The amount allocated is deducted on line 21000 of Income Tax and

Benefit Return in determining the net income of the person who
actually received the pension income, and it is included on line 11600
of Income Tax and Benefit Return in computing the net income of the
spouse or common-law partner.
Old Age Security and Canada or Quebec Pension Plan payments do

not qualify.
The pensioner and his/her spouse or common-law partner

must complete Form T1032, Joint Election to Split Pension Income.

Complete this chapter’s exercises online before proceeding to the next Chapter.
After completing the exercises check your answers.
Also watch the Videos Available Online to complete your learning.

Chapter 7 - Seniors

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Chapter 7 SENIORS

Old Age Security Pension

Taxpayer must be 65 or older.

Softron Tax Page 393

In order to apply for the benefits a taxpayer needs to provide proof of

For more info: https://www.canada.ca/en/services/benefits/publicpensions.html

Softron Tax Page 394

The term "spouse" includes a common-law partner.

Old Age Security pension recovery tax

Recovery Tax Period Income year Minimum Income Maximum Income

July 2019 to June 2020 2018 $75,910 $123,386

For more information:

Softron Tax Page 395

Guaranteed Income supplements or Spouse’s allowance is

However, since these benefits are based on prior year’s

Guaranteed Income Supplement (GIS)

Softron Tax Page 396

When applying for the Supplement, the taxpayer, and in the

Spouse’s Allowance and Widowed Spouse’s Allowance

How are Supplements reported?

Softron Tax Page 397

Softron Tax Page 398

Taxpayers with net income of $77,580 or more may have

If the taxpayer has to repay part or entire old age security

Softron Tax Page 400

CPP benefits are not subject to Clawback.

Old Age Security Benefits for Non-Residents

For more information: https://www.canada.ca/en/revenue-agency/services/tax/international-non-

Canada Pension Plan

An employee and employer each pay half of the

Softron Tax Page 401

Survivor Child Benefit

Retirement Death Benefit

Age affects pension amount:

Request retroactive payments

Softron Tax Page 402

Answer: age 60 =$320 per month {$500 less 36% (0.6%×12months×5yrs)}

Softron Tax Page 403

To qualify for a CPP disability benefit, a taxpayer must:

Softron Tax Page 404

Softron Tax Page 405

Softron Tax Page 406

This is discussed in detail in Trust course.

Deceased's final GST Credits Income earned

Lump Sum CPP Benefits

Softron Tax Page 407

Overpayments of CPP Benefits

Canada Pension Plan Payment Rates

Canada Pension Plan Payment Amounts Jan -Dec 2020

Average amount for

Post Retirement benefit (at age 65) $13.89 $29.40

Post Retirement disability benefit $505.79 $505.79

Disability benefit $1010.57 $1,387.66

Survivor’s pension – younger than 65 $453.59 $638.28

Survivor’s pension – 65 and older $311.33 $705.50

Children of disabled CPP contributors $255.03 $255.03

Children of deceased CPP contributors $255.03 $255.03

Death (maximum one-time payment) $2,494.01 $2,500.00

Survivor’s and retirement pension (at age 65) $902.70 $1,175.83

Survivor’s pension and disability benefit $1,143.31 $1,387.66

Softron Tax Page 408

If only one spouse or common-law partner has contributed to the

Changes to CPP contribution rules

For more information: https://www.canada.ca/en/revenue-