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Filing your income taxes

Taxes. They're unavoidable, even in retirement. As a pensioner, your tax situation has likely changed. To make things a little easier for you, we'll walk through your tax return as a pensioner. We'll discuss ways to reduce your taxes, either by having more deducted at source or through splitting your pension income with your spouse.

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Your tax return

When filing your tax return for the first time as a pensioner, and in the years ahead, there are few things to keep in mind.

Recently retired

Tax receipts for any last-minute buybacks

If you bought back a leave during the same tax year in which you began collecting a pension, you'll receive a T4A from us for the pension adjustment resulting from your buyback. If you paid for your buyback in cash, you'll also receive a tax receipt from us to claim as a deduction. You'll need to include both of these in your tax return.

Gratuities aren't tax-free

You may have received lump-sum payments, or gratuity payments, from your employer when you retired. These are considered taxable income, unless you transfer them into a Registered Retirement Savings Plan. If you opted to keep all or a portion of the cash, be sure to budget for the applicable taxes.

Combined incomes mean varying tax rates

In the year you retire, you'll have a combination of employment income and retirement income. And if you received a gratuity payment, that'll be additional income. All sources of income will be taxed at different rates, so make sure you plan ahead to avoid owing money at tax time.

Throughout retirement

Accessing your T4A

We mail your T4A to you annually at the end of January, along with your January deposit advice slip. You can also get a duplicate online through the Document Centre.

More than one income source

You've likely gone from one income stream to multiple income streams during retirement. These new streams may include payments from the Canada Pension Plan (CPP) and Old Age Security (OAS), as well as re-employment and investment income.

The Canada Revenue Agency (CRA) sets the income tax rates for your pensions. You can review the amount of tax deducted from your Ontario Teachers' pension each month by signing in to your Ontario Teachers' account. You can also find it under the "Income Tax" line item on the deposit advice slip we send you by mail every January and any time there's a change to your net pension.

Splitting your pension income

Do either you or your spouse have a higher retirement income than the other? Pension income splitting may help reduce the amount of taxes owed by your household. If eligible, you can allocate up to half of your pension to your married or common-law spouse when you complete your annual tax return.

Finding the right balance depends on your personal situation. Visit the CRA's website to see if you qualify. If you do, consult a tax professional to find the optimal split for you and your spouse.

Supplementary health insurance

Please contact your health plan directly for tax-related questions about your medical benefits.

Reducing your taxes

You have a couple of options if you want to reduce the amount of taxes you pay each year.

First, you can increase the tax deducted from your Ontario Teachers' pension each month to help reduce the amount you owe at filing time. This is beneficial if you work after retirement and have to pay tax on multiple incomes.

Second, you can allocate up to one-half of your pension income to your spouse for tax purposes. This is called spousal income splitting and it's a viable alternative if you want to reduce your family's taxes. If eligible, you can allocate up to half of your pension to your married or common-law spouse when you complete your annual tax return.

Is pension income splitting right for you?

Pension income splitting is particularly beneficial when one spouse earns a much larger retirement income than the other spouse. Simply put, two retirement incomes that are similar pay less combined tax than if one spouse earns (and pays taxes on) a higher income.

If eligible, you can allocate up to half of your pension to your married or common-law spouse when you complete your annual tax return. For example, if your pension is $50,000 and your married or common-law spouse has no income, you can allocate $14,000 to him or her. This would result in an approximate tax savings of $1,987. Finding the optimal amount to split may take some good old-fashioned number crunching, but the financial rewards may be significant.

We recommend you consult a tax accountant to determine if pension income splitting is right for you – it's a complex decision that depends on your personal financial situation. You can also get more details from the CRA.

It's also important to remember that government legislation doesn't allow us to deduct less tax from pensioners who also intend to split their incomes. We're required to deduct tax based on 100% of your monthly pension payment.

3 steps to pension income splitting

Step 1: See if you're qualified

Visit the CRA website to see the specific requirements. Qualified applicants must:

  • be in a married or common-law relationship;
  • be a Canadian resident in the tax year in question as does the beneficiary of the income splitting; and
  • have received pension income that qualifies for CRA's definition of pension income.

Step 2: See what qualifies as eligible pension income

Eligible pension income is the total amount of the following:

  • the taxable part of life annuity payments from a superannuation or pension plan; and
  • annuity and RRIF (including life income fund) payments and RRSP annuity payments, if they're received as a result of the death of a married or common-law spouse, or if the pensioner is age 65 or older at the end of the year.

Income from OAS and CPP isn't eligible.

Step 3: Apply to the CRA

You and your married or common-law spouse must make a joint election on the Joint Election to Split Pension Income (Form T1032). Only one joint election can be made in a tax year. In other words, if both you and your spouse have eligible pension income, only one of you can split your pension income.

If you're filing electronically, keep Form T1032 in case the CRA asks to see it. If you're filing a paper return, the form must be completed, signed and attached to both your and your spouse's returns. The information on the forms must be the same.