Transcript: Make smart decisions — Retirement tax saving tips

[CIBC logo. Make smart decisions — Retirement Tax Saving tips.]

[Music playing.]

[Jamie Golombek — Managing Director, Tax and Estate Planning, CIBC.]

Are you approaching retirement or already there? 

There are different strategies that may help you make the most of your cashflow in retirement, and understanding the taxation of retirement income can help you retire right.

[Various sources of retirement income include: Withdrawals from TFSAs, RRSPs, RRIFs, and/or RDSPs; Canadian & foreign dividends; Pension plans (private, federal/provincial, old age security); Capital gains, net rental income, guaranteed income supplement, interest.]

There are various sources of retirement income and they can be taxed in different ways. 

So with all these different sources, what is the right order to start with to defer taxes? 

There is no right answer because everyone’s situation is different, but here are some things to think about.

[1. Tax-free cash. An icon of a dollar sign with arrows going in two directions is shown, and is titled “TFSA”. Another icon of a house titled “Selling a residence” appears. A final icon of a present, titled “Gift or inheritance” appears.]

Consider using tax-free cashflow first. This could include TFSAs, proceeds from selling a principal residence or a gift or inheritance.

[2. Taxable non-registered investments. An icon of an increasing graph titled “Stocks” appears. Another icon of a page with an increasing graph on it, titled “Bonds”, appears beside the first.]

Then, think about liquidating any non-registered investments, perhaps a portfolio with stocks and bonds. 

Since capital gains are only half-taxable, this can be a great source of retirement cash.

[The icons for Stocks and Bonds appear and move off-screen, and a numbered line is shown with numbers 1 through 12. The line stops moving and a new icon of a percentage sign with a down arrow appears. Under this icon is the wording: “Dividend income is taxed at a preferential rate in future years.” This moves off-screen, and an icon of a boat appears.]

When choosing which investments to liquidate first, keep in mind that if you hang on to Canadian dividend-paying stocks and mutual funds, that dividend income will be taxed at a preferential rate in future years, making dividend income a tax-effective source of retirement income for many Canadians. 

[3. Fully taxable income. An icon of dollar signs, with an arrow moving from the two dollar signs to a third dollar sign below, is shown. This then moves off-screen, to be replaced by an icon of a wallet titled “Private Plans”. This moves off-screen, and is replaced by an icon of a lightbulb titled “Canada Pension or Old Age Security”. This icon moves off-screen, and three more icons appear: Coins titled “Interest”; pound notes titled “Foreign dividends” and a house titled “Net rental income”. These icons move off-screen, and are replaced by two more icons titled “RRSPs” and “RRIFs”.]

Then you move into your fully taxable income. While you may be forced to withdraw an annual minimum amount from a RRIF, you may have other sources of retirement income, such as pension benefits from private plans, the Canada Pension Plan or Old Age Security. 

Most investment income, such as interest, foreign dividends or net rental income is fully taxable. As are RRSP and RRIF withdrawals.

[Graphic titled “Pension income splitting” with an icon of two smiling people. The icon splits into two separate people icons, which move off to either side of a new icon of a scale balancing dollars on either end. These icons move off-screen, and a new icon of a folded document is shown.]

If you have a spouse or common law partner, you may be able to split your eligible pension income, including your RRIF income, once you reach age 65.

You can make an election annually when filing your taxes, that allows you to transfer up to 50 percent of your eligible pension income to your spouse or common law partner, which may reduce your family's tax bill.

Lastly, if you are in retirement, explore some of these tax credits that may be available to you.

[Explore some of these tax credits that may be available to you. A bulleted list: Age amount; Pension income amount; Disability amount; Home accessibility tax credit; Medical expense tax credit.]

[To learn more, visit CIBC.com/smartadvice.]

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