Personal Finance » Tax

Tax planning strategies involving the pension income credit

Unfortunately, fewer and fewer people belong to a formal pension plan and if that’s you, don’t lose hope because you might still qualify for the pension income credit. Let’s look at some planning opportunities to create pension income to qualify for the pension income credit.

Eligible pension income

Eligible pension income depends on your age. If you do not have pension income from a pension plan, you cannot claim the pension income credit until age 65. For those 65 or older pension income for the purpose of the pension income credit includes any of the following sources of income:

  1. Annuity income out of an RRSP or DPSP
  2. Income from a Registered Retirement Income Fund (RRIF)
  3. Interest from a prescribed non-registered annuity
  4. Income from foreign pensions
  5. Interest from a non-registered GIC offered by a life insurance company.

Keep in mind CPP and OAS do not qualify as income for the pension income credit.

If you are over the age of 65 and you are not part of a superannuation or pension plan, here are some planning strategies to create qualified pension income to save taxes.

  1. Transfer RRSP to an RRIF. At age 65 transfer $14,000 to an RRIF and take $2000 out per year from age 65 to 71 (inclusive). This essentially allows you to get the first $2000 out of your RRSP tax-free for 7 years. Whether you need income or not, it is an opportunity you do not want to miss.
  2. Transfer Locked-in Retirement Account (LIRA) assets to a Life Income Fund (LIF) and then annuitize. In most cases, you can transfer your LIRA to a LIF once you reach the age of 55. However, although the LIRA fund originates from a pension, LIF income only qualifies for the pension income credit if you are age 65 or older.
  3. Buy a GIC from a life insurance company. If you do not have any qualifying pension income, are age 65 or over, and do not want to draw down your registered assets at this time, simply purchase a GIC through a life insurance company because the interest is considered eligible pension income. To determine how much principal you would require to be able to claim the full credit, divide $2,000 by the applicable interest rate for the term you want. For example, if you wanted a 5-year term and the current annual rate was 4.0% you would need to invest $50,000 (2000 divided by 4.0%=$50,000).
  4. Transfer of Unused Credit to a Spouse. Unused pension income credit is transferable to a spouse or common-law partner. The ability to transfer this credit should be explored in circumstances where one spouse is earning pension income in excess of $2,000, and the other spouse is not otherwise fully utilizing his or her pension income credit.
  5. Pension Split income with your spouse. If you have utilized any strategies to qualify for the pension income credit, then it may be advantageous to transfer at least $2000 of the eligible pension income to your spouse through pension splitting and have your spouse qualify for the $2000 pension income credit. As long as the person transferring income ha eligible pension income and qualifies for the pension income credit, the spouse receiving the income will also qualify for the pension tax credit at any age.

If you are over the age of 65, take a look at line 314 in your tax return to see if you are taking advantage of the Pension Income Tax Credit. If not, consider one of these tax savings strategies.


  1. TTH

    Jim, thanks to you, at age 65 I will be transferring $2,000 from RRSP to RRIF to claim the full pension income credit.

    As my wife has no pension income, is there any advantage to “Pension Split income with your spouse” as part of your tax planning strategies?

    I have requested for income split for the CPP & OAS. Can the RRIF (as above) be not split to take advantage of the full tax credit?

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