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With tax season approaching, it’s worth looking closely at credits for seniors.

Calculating credits

A tax credit allows a person to reduce tax otherwise owing to a government. While that’s obvious to specialists, the broader public isn’t as well informed.

A credit is expressed as an amount that’s then multiplied by a credit rate. With few exceptions (e.g., donations over $200), the credit rate is at the client’s lowest bracket rate.

So, while the amount gets the headlines, the credit’s dollar value is much smaller. It can be as little as 1/20th in some provinces.

Value of common credits

At the federal level, the pension credit amount is available on up to $2,000 of qualifying pension income. This includes income from registered pension plans at any age. At the 15% credit rate, it’s worth up to $300. Typically, income from a person’s own RRIF only qualifies after reaching age 65. The age-65 credit amount has a base of $6,854, leading to a maximum credit of $1,028 in 2013. The amount’s reduced for income in excess of $34,562, and is completely nixed when income reaches $80,256. The minimum threshold for provincial clawbacks ranges roughly between $27,000 and $36,000.

Add these federal values to the corresponding provincial credits shown in the accompanying table to arrive at the potential total value.

Other credits

Pension and age credits aren’t the only ones available to seniors. Disability and medical expense credits, as well as GST/HST and provincial sales tax credits, can also help. And almost all provinces have a property tax credit or deferral program. But keep in mind the latter often have a low-income requirement at or near the cut-off for the guaranteed income supplement.

Provincial tax credits

Add these to federal values

Province Pension Age
BC $51 $224
AB $136 $490
SK $110 $511
MB $108 $403
ON $67 $236
QC $428 $482
NB $94 $430
NS $103 $364
PE $98 $369
NL $77 $415

Doug Carroll, JD, LLM (Tax), CFP, TEP, is vice president, Tax and Estate Planning, Invesco Canada.

Originally published in Advisor's Edge Report

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