Fiscally speaking, work or retire?

“It’s important to contact your accountant to demystify the credits that will apply to your situation.” (Photo: 123RF)

The Questions for My Accountant section is signed by accounting students from the Université du Québec en Outaouais (UQO).

When it comes time to retire, there are several tax-related factors to consider in order to spend this time with total peace of mind and, above all, without financial stress.

Here we discuss the main public schemes that can provide you with retirement benefits. We will also discuss the disadvantages that may arise when a taxpayer chooses to work at this stage of life. This way you will be able to know what the effects will be on your taxable income if you decide to continue working, as well as if you decide to take full advantage of your pension.

First, the old-age pension is one of the benefits available to retired taxpayers. This is an amount paid monthly by the Government of Canada to each taxpayer’s bank account. To be eligible, you must be 65 years of age or older and apply on the Canada Revenue Agency (CRA) website. Furthermore, a person must have lived in Canada for at least 10 years after turning 18. You must be 40 or older in Canada to receive the maximum benefit. This is a taxable amount, meaning we have to report it on the income section of our tax return.

FYI, for tax year 2024 (from July 2023 to June 2024), the maximum monthly benefit for a person aged 65 to 74 is $713.34, while it is $784 for someone over 75. However, if you are working, you may have to pay back part of the benefit (Old Age Insurance Recovery Tax) which is 15% of the difference between your net income from all sources and the maximum allowable limit of $90,997 (2024). In addition, you can defer payment of PSV for up to 60 months (5 years) after reaching the age of 65. This allows you to have larger monthly amounts when you are 70 years old. After the age of 70, however, deferment of repayments no longer has any advantage. On the contrary, you risk losing the benefits, because no bonus is granted from this age.

Second, the Quebec Pension Plan (QPP) is a plan funded by employee and employer contributions. In 2024, the maximum contribution (employer/employee) is $4,348. The QPP Old Age Pension is paid by the provincial government to any pensioner who applies for it and has reached the age of 60 or over. It must be listed on the tax return. The reference age for retirement is set at 65 for this pension benefit. This means that the amount will be reduced if the employee retires before age 65, or increased if they delay retirement. FYI, a person who applied at age 65 could receive a pension up to a maximum amount of $16,015. To be eligible, a taxpayer must contribute to the QPP for at least one year. Three factors are important when calculating the amount of pension you will be entitled to:

  1. Number of years of QPP contributions (from age 18 to retirement)
  2. The total amount of your income
  3. The age at which you start receiving the QPP Retirement Pension.

It should be noted that this pension does not disadvantage a taxpayer who continues to work after the age of 65. On the contrary, due to the fact that the amounts contributed are valued, it is advantageous to wait until retirement to receive this benefit. The taxpayer who waits will therefore not lose his purchasing power. It should also be noted that from 1ahem From January 2024, the QPP contribution for pensioners returning to the labor market is now optional. Workers aged 65 and over will receive a higher net pay if they choose not to contribute to the QPP from this age. But they themselves are preparing for an increase in their old-age pension.

Third, the Guaranteed Income Supplement (GIS) is a monthly benefit paid to every taxpayer aged 65 and over with a low income. This amount is paid by the federal government and is tax-free. To be eligible, you must be a Canadian resident and apply on the ARC website between the ages of 60 and 64.

The maximum payment amounts are as follows:

  • Income below $21,624 and single, widowed or divorced: up to $1,065.47 per month.
  • Combined income of a couple below $28,560 and a spouse/partner receiving full security and the old age pension: up to $641.35 per month.
  • Combined income of a couple below $39,984 and a spouse/partner receiving the allowance: up to $641.35 per month.
  • Combined income of a couple below $51,840 and a spouse/partner receiving neither PSV nor allowance: up to $1,065.47 per month.

A person who continues to work after the age of 65 will therefore be at a disadvantage, because he may no longer have access to GIS due to his income.

Finally, we can’t ignore Registered Retirement Savings (RRSP), even if it’s not a public plan. The RRSP is one of the most well-known and widely used plans. After age 71, taxpayers with RRSPs must take action. In fact, at this age, the RRSP matures and is automatically rolled over into a Registered Retirement Income Fund (RRIF). Please note that a RRIF does not allow for taxpayer contributions and requires you to make minimum withdrawals each year. These withdrawals are taxable. With good planning, a taxpayer could also opt for other options, such as cashing out some or all of the RRSP or purchasing an annuity (lifetime or not). It can be a combination of these three possibilities. However, it is important to understand that the entire payout amount is taxable and that this option can be very expensive. In fact, it could deprive you of your SRG or cause your PSV to be replaced. The option of buying an annuity (lifetime or not) would allow you to have a fixed retirement income. Annuity amounts thus obtained are taxable in the year in which they are received.

Now let’s mention a few other credits available to retired taxpayers:

  • Amount for retirement income
  • Amount based on age
  • Career extension credit
  • Credit for seniors (65 and over)
  • Mental or physical disability tax credit (if you have a cane or walker)

Depending on your situation, some benefits and credits will apply and others will not. It is important to contact your accountant to demystify the credits that will apply to your situation.

Finally, you have noticed that there are several elements to consider when retiring and also if you want to continue working. With the looming threat of labor shortages, we will need to remain on the lookout for new benefits and tax benefits available to taxpayers who continue to work after retirement.

Eve Levesque-Laganière, accounting student at the University of Quebec en Outaouais

Eve Levesque-Laganière, accounting student at the University of Quebec en Outaouais

Justine Lorand, accounting student at the University of Quebec en Outaouais

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