Tax Planning

Change your tax planning as you retire

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Christine Ibbotson Christine Ibbotson Christine Ibbotson

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Dear money lady:

We heard one of your radio shows and you said that people who made less than $ 75,000 in 2020 won’t have to pay taxes in 2021. Can you explain this and let me know if there are any other tax breaks for seniors? What should I talk to my accountant about?

Thank you, george

George, you are partially right.

If a Canadian had an income of less than $ 75,000 in 2020 and received either an EI (labor insurance) or one or more COVID benefits, they will not have to pay any tax until April 30, 2022 but will still have to file on time (Jan. April 2021). This would include the CERB, the Canadian Emergency Response Benefit, the Emergency Student Benefit, the Recovery Benefit, the Recovery Caregiving Benefit, and the Canada Recovery Sickness Benefit or EI (Employment Insurance) in 2020.

Managing your taxes during your working years is relatively general. You can maximize your RRSP contributions, buy assets that have the lowest possible tax on capital gains, or buy real estate to add to your wealth. Some even invest in rental properties to build additional wealth and use the ongoing expenses as a tax write-off to lower their marginal tax rate.


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However, with the transition into retirement, the tax planning process shifts to the most tax efficient way of withdrawing assets.

George, to be tax efficient in retirement, many retirees may need to make a small “mind shift” here. Most are busy minimizing current taxes every year. However, this cannot come at the expense of your long-term goal of maximizing after-tax income for your entire retirement (often estimated at 25 to 40 years). Retirees need to have a good understanding of how different sources of income are taxed. Decisions need to be made about how to properly allocate investments, with precise knowledge of the tax brackets and thresholds for future tax credits. Rising life expectancy, market volatility, rising inflation and of course the unplanned expenses we never thought of; All of them pose serious threats to a retiree’s ability to manage their finances for a lifetime.

So let’s look at some ways we can increase your after-tax income in retirement.

There are three main types of taxation to consider: interest income, dividend income and capital gains. They are all taxed differently, so it is easier to structure your portfolio more efficiently when you create your plan with your advisor. Typically, you want to invest income that is unfavorably taxed (interest income) in tax-protected products such as TFSAs or RRSPs. Capital gains that generate returns that receive more favorable tax treatment (dividends or capital gains) should be posted to unregistered accounts.


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The next rule is to take advantage of the state pensions and consider them first when estimating your annual withdrawals for your annual income. We want to avoid reclaims as much as possible. Therefore, it is imperative that you have a good understanding of your company pension, state pensions and / or projected capital gains withdrawals for each year in order to clearly define taxation. People aged 65 and over can also take advantage of the old-age tax credit and the pension income credit.

Other ways to initiate good tax planning opportunities would be to use the CPP / QPP pension sharing with a spouse or partner under common law if possible. You can also split employer pension plans and registered plans with a lower-income spouse or common law partner to lower marginal tax rates. Remember that if you have registered plans, RRSP, LIRA or LIFs, you should try to keep them until their last due date (example age 71). Once registered funds have been converted to an RRIF or LRIF, the mandatory annual minimum withdrawal requirement ensures that you have reportable income every year.

Tax efficiency in retirement shouldn’t be overlooked and should be discussed with your advisor on a regular basis. Simply put, paying less tax means you have more money in your pocket, so you can enjoy a better quality of life with less overall investment and lifestyle risk.

Good luck and all the best

Christine Ibbotson

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Written by Christine Ibbotson, author of three financial books and the Canadian bestseller “How to Retire Debt Free & Wealthy”. Go to or send a question to

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