Retirement income and related deductions in Canada

Overview

Retirement income refers to income you received after you stop working in Canada usually pension, government benefits and retirement saving plans. There are most common slips you can expect for your retirement income.

• T4A(P) – Statement of Canada Pension plan
• T4A(OAS) – Statement of Old Age Securities
• T4(A) – Statement of Pension, Retirement, Annuity, and other Income
• T4RSP – Statement of RRSP income
• T4 RIF – Statement of RRIF income – usually it comes from your RRSP contribution made in the past
• Foreign Pension Statements – Pension received from foreign government.

T4A(P) – Statement of Canada Pension plan

Canada Pension Plan (CPP) is a government- run retirement plan that provides funds to support your retirement. You contribute towards the plan during your working years either from your pensionable employment or self employment earnings. The amount you receive depends on how much and how long your contributed, and at the age you start your pension.

Contribution – you must be at least 18 years old and working in Canada to contribute to the CPP. CPP contributions are required on pensionable earnings above the basic exemption (currently $3,500) up to the annual maximum. For employment income, your employer matches your contribution; if you are self-employed, you are responsible for paying both employer and employee portion of CPP.

How much CPP you need to pay while working in Canada

CPP contributions are based on your employment or self-employment income for the year. Each year there is a maximum pensionable earning ($71,300 for 2025), on which base CPP contributions are calculated. You do not pay more than your yearly maximum pensionable earning; contributions are capped at the limits. If your pensionable earnings are at or below basic exemption ($3,500) or more than yearly maximum pensionable earning, you do not contribute.

For employees – employees pay 5.95% (for 2025) of pensionable earning above exemption ($3,500) up to maximum. Your employer contributes matching contribution.

For Self employed – you are required to pay both employer and employee contributions which is 11.9% ( 5.95% – employee and 5.95% – employer)

When Canada pension plan benefits are paid

You can start collecting your CPP benefits as early as age 60 or as late as age 70. You have no option to defer CPP benefits after 70-year-old. However, your benefit amount increases the later you start collecting after age of 60, but standard age collecting CPP in Canada is 65 years.

Your benefit amount depends on how much and how long you contributed to the CPP while you are employed or self-employed. You can continue working until before age 70, and any additional contribution during this period increases your CPP benefits.

If you are severely disable and unable to work, you may qualify for the Canada Pension Disability Benefit. Please contact us if this applies to you.

If you pass away, your spouse, common-law partner and dependent child may receive CPP death benefit up to $2,500. This amount can also be paid to your estate.

How much CPP you can expect at your retirement

Well, this depends on total contribution you made to this plan and the age at which you started contributing. The earlier you started contributing, the higher your monthly payments will be. In 2025, maximum monthly CPP payment at age 65 is approximately $1,365. Many people receives less than this because they did not contribute the maximum over their working career.

Note: You must apply to Service Canada to start your CPP payments — it is not automatic.

Can I split CPP with my spouse

If both you and your spouse are at age 60 or older, at least one of you is receiving CPP retirement benefit, and living together, it is possible to split CPP payments with your spouse. When CPP payments are split, a portion of one spouse’s CPP benefit is paid directly to the other spouse and reported on their income tax return. This is specifically helpful if you have other sources of income and your income is higher than your spouse’s income. Splitting CPP benefit can reduce your overall taxes, because portion transferred is taxed at your spouse’s lower income tax rate, while your taxable income is reduced.

To split CPP benefit, you must apply to Service Canada using form IS1002 – Application of Canada Pension Plan Sharing of Retirement Pension(s). Both you and your spouse must sign the application.

T4A(OAS) – Statement of Old Age Securities

Old Age Securities (OAS) benefits are provided to all eligible Canadians aged 65 or older, even if they have no employment history. Unlike CPP, you do not need to work to qualify for OAS benefits in Canada. However, there are eligibility criteria you must meet to receive these benefits.

Eligibility rules

1. You must be 65 years or older
2. Must be Canadian or legal residence at the time of OAS approval
3. Must have lived in Canada at lease
   1. 10 years after age 18(to receive OAS while living in Canada)
   2. 20 years after age 18 (to receive OAS while living outside Canada)

OAS amounts (as of July – September 2025, amount adjust with inflation):

• If you are 65 – 74-year-old – $718.33 per month
• If you are 75 and older – $790.16 per month

Claw back (Repayment) – you may have to repay Part you your OAS if your net income exceeds $94,740 (for 2025). No OAS benefit is available if your income exceeds $154,000. Repayment rate is 15% of the amount over $94,740

Pension, Retirement, Annuity, and other Income

T4A is issued to report pension, retirement, annuity, and other income, including income from:

• Registered Pension Plan (RPP)
• Annuity payments
• Lump-sum amounts
• Retirement allowances
• Registered Retirement Income Fund (RRIF)

Registered Pension Plan (RPP)

This is an employe- sponsored registered pension plan where your employer contributes while you are working with them. At retirement, you receive pension income from the RPP, which fully taxable and must be included in your income.

Annuity payments

you might purchase financial products to fund your retirement, such as Sunlife Life annuity or term-certain annuity. Annuity can also be purchased using RRSP or RRIFs or other pension; in this case, annuity payments receive at retirement are fully taxable. However, if an annuity was purchased from after tax money (outside of a registered pension plan), only the income portion is taxable.

Lump sum amounts

A lump sum amount includes amount received as severance pay, retirement allowance, retroactive pension payments or death benefits. They are fully taxable and must be included in your income. Usually, these payments are subject to tax withholding at source.

Regarding retirement allowance, if eligible, you can transfer directly to your RRSP (ensure it is direct transfer not you receive first and transfer to RRSP, it is not considered direct transfer). The CRA allows the following retirement allowances to transfer directly to RRSP without affecting RRSP contribution room

1. $2,000 per year of service before 1996
2. $1,500 per year of service after 1995

There are other rules associated with this transfer. Therefore, please consult a tax professional before making the transfer, because an ineligible transfer can affect your RRSP contribution room and may result in an over-contribution.

Registered Retirement Saving Plan (RRSP) income

– if you withdraw from your RRSP without transferring to RRIF (which will discussed next), the amount must be included in your income. Your will be issued a T4(RSP) slip to report this income on your personal tax return. It is fully taxable, and tax is withheld at source.

Registered Retirement Income Fund (RRIF) payments

You can contribute to an RRSP up to age of 71, and the accumulated RRSP funds must be withdrawn after the age of 71. Instead of withdrawing the entire amount at once – which could be taxed at higher marginal rate – you can convert your RRSP into a RRIF and receive regular retirement payments (yearly). Since your RRSP contributions were made pre-tax dollars (tax deferred), RRIF payments are fully taxable when you received. You must withdraw the minimum amount from your RRIF after age 71. You can still withdraw more than minimum amounts, but withdrawals are fully taxable.

Your RRIF payments can be made monthly, quarterly or yearly. You may also quality for the pension income tax credit (maximum $2,000), which can be split with your spouse if received after age of 65.

Pension received from foreign government

This is a pension paid by a government outside Canada for work you performed for that government, including examples such as U.S. Social Security Benefits and the UK State Pension. Since Canadian tax system requires reporting of worldwide income, this retirement income must be included in your personal tax return, converted to Canadian dollars. If foreign government withheld tax on the pension, you may be able to claim foreign tax credit on your Canadian tax return to reduce your Canadian taxes. You may also be eligible to claim pension credit and split income if conditions are met.

Please contact us if you need further information or assistance.

Tax planning for retirement income

• If you’re around age 50 and still working, contribute to your RRSP to maximize retirement savings—the deduction applies at your current (often higher) marginal tax rate.
• You should also consider maximizing your Tax- Free Saving Account (TFSA). Withdrawals are tax free and don’t affect your other income tested benefits such as OSA, providing retirement income without claw back.
• If you are age 65 and over, consider splitting your eligible pension income such as RRIF, registered retirement plan and other annuity with your spouse/common-law partner. You can split up to 50% of eligible pension income with your spouse/ common-law partner. If your spouse’s income is lower, this can reduce your combined tax and potential OAS claw back.
• You should aim to keep your net income $90,000 to avoid OAS claw back. Strategies include withdrawing RRSP earlier (e.g., in your early 60s), splitting eligible pension income with your spouse, and using the TFSA for additional saving/withdrawal.
• If you expect high taxable income in your early retirement age, you may consider taking earlier CPP/OAS retirement benefits as early you start, lesser the benefit will be in the future. You can start taking CPP/OSA anytime between age 60-70 years.
• RRSP/RRIF is fully taxable on death to you unless you pass it to your spouse or disable child. Therefore, consider having your spouse or disable child as your beneficiary annuitant.
• You may consider establishing a Prescribed Interest Rate Trust, where you loan the money and charge interest at the CRA prescribe rate (around 5%) in effect when loan is made. The trust invests the fund and can distribute returns above the interest cost to lower-income adult family members, who are then taxed on that income. You report the interest received; the trust deducts the interest it pays. This strategy is most useful if you have significant non-registered capital and expect investment returns to exceed the prescribed rate. Obtain legal/tax advice and be mindful of attribution and TOSI rules.

If you need more assistance with how to handle your retirement fund, please contact one of our tax specialists.