strategies for retirement

Nine Tax Strategies to Pay Less Tax in Retirement

Income tax is one of the largest expenses any retiree has. The Fraser Institute Report indicated that Canadians paid 45% of income as taxes in 2019. 

Your goal in retirement should be to organize your income stream to:

  • reduce the amount of tax you may have to pay 
  • preserve any government tax credits
  • preserve government income plans such as Old Age Security 

The result will be greater spending for you today, and potentially greater wealth for the next generation.

There are nine tax strategies to review that could reduce your overall taxes:

  1. Income Splitting
  2. Spousal RRSPs
  3. Tax Effective Non-Registered Investments
  4. RRIF Planning
  5. Use TFSA Investments
  6. Avoid the OAS Recovery Tax
  7. Use Key Tax Credits
  8. Income Withdrawal Location
  9. Tax Bracket Management

1. Income Splitting with your Spouse/CLP

A smart tax strategy to reduce a family’s overall tax burden is to split the income.  This means to shift income from a spouse or common-law partner (CLP) who is in a higher tax bracket to one who is in a lower tax bracket. 

With income splitting, you could potentially reduce or eliminate any OAS clawback for the higher income spouse. 

Key Strategies Include:

  • Sharing Canada Pension Plan (CPP) – Once you are both 60, you can apply to share your CPP payments with your spouse/CLP. The total amount of pension stays the same, but more CPP income is allocated to the lower taxed spouse/CLP.  The amount that can be share is based on several factors including:
  • how long you have lived together
  • how long you have contributed to CPP

This is not done on your income tax return; you have to apply to CPP directly. They will do the calculations and adjust the monthly payments.

  • Pension SplittingThis is a strategy for a spouse/CLP to reduce tax by transferring pension income (for tax purposes) from the higher income earner to the lower income earner. The transferring spouse/CLP can give up to 50% of their eligible pension income to the receiving spouse/CLP. 

If you are 65 years of age or older, eligible sources for pension income splitting include:

  • a Registered Retirement Income Fund (RRIF) 
  • a Life Income Fund (LIF)
  • a Registered Pension Plan (RPP)
  • an annuity purchased with a Registered Retirement Savings Plan (RRSP). 

It should be noted that the receiving spouse/CLP does not have to be age 65 or older.

If you are under age 65, eligible income is mainly limited to:

  • registered pension plan benefits and certain payments resulting from the death of a former spouse or common law partner 

Spousal Loans

You can use a spousal loan to shift income from a higher taxed spouse/CLP to a lower-taxed spouse/CLP to take advantage of their lower marginal tax rate. This is best used for large non-registered investments.

An example might be when one spouse/CLP at retirement receives a lump sum in cash due to selling company shares or a private business.

You can’t give your spouse/CLP the money to invest, and thereby reduce taxes because the CRA has attribution rules which prevent this from happening.

To avoid the attribution rules, you would use a spousal loan. The process would be to:

  • loan money to your spouse/CLP 
  • they would invest the money  
  • each year they have to pay you interest at the prescribed rate, which is set by the CRA  
  • the income earned on the money loaned to your spouse/CLP is taxed as theirs
  • you would report the interest paid to you as income  

Assuming the income earned on the loaned money is higher than the interest payment, you are effectively shifting income to a lower tax bracket.  However, to accomplish this there must be:

  • a formal loan documents
  • interest must be charged and be at least equal to the CRA’s prescribed rate  
    • this rate is currently 1.0 % and would last the length of the loan
  • Interest must be paid within 30 days of year end

The advantage of this strategy is any income earned from the loan money is taxed at a lower tax rate resulting in greater wealth accumulation for couples in retirement.

2. Spousal RRSPs 

Spousal RRSPs are a great way to shift income from one spouse/CLP to another. 

 A Spousal RRSP occurs when a higher income spouse/CLP contributes to the lower-income spouse/CLP’s RRSPs, who is the annuitant (owner).  

  • The higher income spouse/CLP gets the tax deduction, but the lower income spouse/CLP is the owner, and in retirement this can shift income from the higher to the lower income spouse/CLP.  
  • This is often done to make the accumulation of assets about the same for both spouses/CLPs prior to retirement.
  • While RRIF income after the age of 65 qualifies for income splitting, prior to age 65 it does not. Using Spousal RRSPs over time allows you to spread the income over two taxpayers prior to the age of 65 and allows for increased flexibility.
  • Also, if you are over the age of 71, you can still contribute to a spousal RRSP if your spouse/CLP is under the age of 71.

A couple of points to be mindful of:

  • Spousal RRSP contribution room is based on the person making the contribution. 
  • If money is redeemed from the Spousal RRSP within three years of the last contribution, it is taxed to the contributing spouse. However, the minimum RRIF payments are not subject to this attribution rule.

3. Tax Effective Non-Registered Investments

One of the best ways to keep your taxable income low is to have tax-efficient investments in your non-registered investment accounts. Key options to review include: 

Utilize Capital Gains: 

For retirees, it can be beneficial to use investments that generate capital gains for non-registered investments as the tax on the income is lower than investments that generate dividends or interest income. 

  • With capital gains, only 50% of a capital gain is included income.
  • With dividends, the payments are grossed up by 138%. 
  • Interest income is 100% taxable.
Corporate Class Funds 

These investments are tax effective for non-registered investments as they can only generate capital gains and dividends which are taxed less than interest income.

T-Series Funds 

They are a class of mutual funds that can be tax-effective. They allow a portion of the income you take each year to be considered return of capital (ROC), so no income tax is payable, nor is it included in the OAS clawback calculation. 

4. RRIF Planning  

Review the start date of your RRIF.

You will want to review the start date or the conversion date of your RRSPs to an RRIF.  It may make sense to start the income prior to age 71, and for some, it may make sense to delay it until after age 71.  You will have to look at your projected income levels at different ages to do the comparisons.

Use the younger spouse/CLP’s age for RRIF payments.

When you convert your RRSP to an RRIF, there is a minimum RRIF payment each year that is based on the age of the RRIF’s annuitant (owner).  This minimum RRIF withdrawal amount % increases each year.

However, if your spouse/CLP is younger than you, you can base the minimum amount on their age, resulting in a lower amount you must withdraw each year.

This can help to: 

  • reduce your current year’s taxation,
  • preserve your assets longer,
  • and provide more flexibility over time.
  • RRIF Exit Plan – When you defer the conversion of RRSPs to RRIFs it creates a larger account value, and on the death of the last spouse/CLP, any assets remaining in the plan are taxed as 100% income in the year of death.  

This strategy should be reviewed annually, and over time you may start to fill up the lower tax buckets and reduce potential tax in your estate as part of an RRIF exit plan.

5. Use TFSA Investments

Prior to and in retirement, any excess cash flow should be redirected into a TFSA.  The reasons are:

  • You can give your spouse/CLP money to invest in their TFSA without the attribution rules applying.
  • There is no tax paid on the income earned in the TFSA, or upon the withdrawal.
  • Since there is no tax on the income earned in a TFSA or upon withdrawal, income-tested benefits are preserved.
  • TFSAs are great as an estate asset because you can name a beneficiary to avoid probate, and no taxes are paid on its transfer. 

6. Avoid the OAS Recovery Tax

Old Age Security (OAS) is an income benefit that is paid to Canadians once they reach the age of 65.   If your individual income is over $79,845 for 2021, you have to start to pay back your OAS at a rate of 15% for each dollar over $79,845. This tax recovery is often called the clawback. 

Strategies to reduce the OAS recovery in addition to the prior strategies include:

  • Defer OAS – If you are in the OAS claw back situation, you may want to delay OAS to age 70.  By doing so the amount of OAS will increase, and you may get some more as a result. If your other income reduces as you get older, your OAS will be more. 
  • Trigger large capital gains prior to age 65.

If you are planning a major purchase or rebalancing your portfolio, you may want to trigger large capital gains prior to age 65 to avoid the OAS clawback.

7. Use Key Tax Credits

In retirement, the following are the key tax credits that you will want to review.

  • PENSION CREDITYou will receive a pension credit for the first $2,000 of eligible income.  If you are under the age of 65, this is income from a pension plan.  Once you are over the age of 65, this would be income from RRIF and LIF payments.

Your Action:

If you are over the age of 65, consider withdrawing $2,000 from an RRIF.

  • MEDICAL EXPENSE TAX CREDITYou may be able to claim some of the money you spend on medical expenses on your income tax return.

Some common medical expenses include:

  • prescription drugs
  • personal health plans
  • Care Facilitiesexpenses for attendant care and care in a facility such as a nursing or retirement home 
  • medical treatments not covered by provincial plans
  • hearing and vision aids
  • mobility aids
  • some renovations for mobility-related aids
  • See the CRA website for a full list of expenses.

You can claim medical expenses for you and your spouse/CLP for any 12-month period that ends in the tax year.  

  • DISABILITY TAX CREDIT  – As you age if you, your spouse/CLP, or your dependents have a severe and prolonged impairment and meet certain conditions, you may be eligible for the Disability Tax Credit (DTC).  For example, Alzheimer’s would qualify for the Disability Tax Credit.

To determine eligibility you must complete Form T2201, Disability Tax Credit Certificate and have it certified by a medical practitioner.

In 2021 the disability amount was $ 8,662; therefore, this would reduce your tax owing by $1,299.30 (15% tax credit).

If you or your spouse/CLP live in a nursing home, you may want to apply for the Disability Tax Credit. If you or your spouse/CLP live in a retirement home, you may wish to review to see if you qualify.

Your Action: You will need to apply for this.

8. Income Withdrawal Location

  • Income Withdrawal Location & Sequencing – One of the most important decisions a retiree must make is choosing which sources of income to start, which to defer, and the timing for each

The following is a list of the potential cash flow sources that may be available. The sources are divided into reliable income such as government plans, and variable sources of income from your own savings.

Reliable Sources of Income can include: 

  • Canada Pension Plan
  • Old Age Security
  • Company Pension Plans
  • Annuities 
  • Guaranteed Income Products

Variable Sources of Income can include:

  • RRSPs
  • Locked in RRSPs
  • RRIFs/LIFs
  • Non-Registered Investment Accounts
  • HOLDCOs 

Each of the above cash flow sources can have different start dates, and a retired couple could easily have to decide on how and when to start the income or cash flow from 6 to 12 sources or more.

The typical drawdown order we often compare (in a sequencing order) are:
  • Non-Registered Investments, TFSAs, and RRSPs
  • Non-Registered Investments, RRSPs, and TFSAs 
  • RRSPs, Non-Registered Investments, TFSAs
  • Blended withdrawals – equal from each source
  • Custom withdrawals based on tax bracket management. This often includes partial RRSP conversions and using TFSAs as a long-term and/or estate asset.


You will want to model starting the various sources of income at different times as each will have a different effect on the taxes you have to pay and your estate value for the next generation.

You may also wish to review if it makes sense to start or delay CPP payments in your modelling.

9. Tax Bracket Management

In Canada, we have a marginal tax rate system which means as you earn more income, the tax you pay on each additional dollar increases.  Part of what you should examine are the marginal tax rates over time, and if there are any strategies to even out between spouses or common law partners (CLP’s). 

You will want to specifically review the effects at:

  • age 65, when you start to receive OAS
  • age 71, or when you must convert your RRSPs to RRIFs  

If you find you are in the OAS clawback zone at age 65 or 71, you may want to fill up the “tax buckets” when you have lower income years to reduce or eliminate it. 

The key income levels for 2022 are:

Taxable Income What is important ?
$14,398 The first $14,398 of income is tax free
$39,826 This is the level that you start to lose the Age Credit
$81,761 You start to pay back part of your Old Age Security (15% of the income over)
$92,479 This is the level that you lose the Age Credit
$132,581 You pay back 100 % of Old Age Security

For 2022 –  

It should be noted that for seniors aged 75 plus, you will see a 10% increase of OAS as of July 2022.

You may want to increase or reduce your income each year based on your tax brackets — but this must be taken in consideration of your lifetime retirement income and cash flow plan.


In reviewing the options, often it can come down to balancing short- and long-term tax efficiency as follows:

  • maximize your current income or cash flow today, or
  • maximize your terminal wealth (estate value). 


You will want to not only examine the current taxes you are paying but review how your marginal tax rate may change over time, followed by the potential taxes in your estate.

For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®


For your free retirement readiness assessment CLICK HERE

Buy Preserving Wealth  CLICK HERE

Jack Lumsden, MBA, CFP®   Financial Advisor, Assante Financial Management Ltd.

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.

Insurance products are services provided through Assante Estate and Insurance Services Inc.

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