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Lowering the tax bill for 2020: tips for seniors and retirees

Many unusual claims and benefits are on tap for the 2020 tax year, some of special note for seniors.
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Deducting medical expenses? Taking funds from an RRSP? Collecting CERB? It's time to talk taxes.

It's an understatement to say this year's tax season is unique, and potentially confusing. Did you work at home in 2020? Many of us did. Were you laid off and did you collect one of the government wage subsidies? Were you collecting from a private pension? Lisa Gittens, senior tax expert with H&R Block said there are special benefits and credits that can help seniors and retirees (and everyone) with their 2020 tax bill.

"Some 30 million Canadians are of tax filing age and seniors may think doing it isn't as important now as when they were employed. But filing is important every year, whatever your age, so you can continue to receive benefits you're entitled to," said Gittens. Case in point: a one-time benefit to seniors for 2020 equalling $300, and an extra $200 for those eligible for the Guaranteed Income Supplement (GIS). All Alberta residents over 18 are also eligible for the Climate Action Incentive, a $490 refundable tax credit.

"If you file a return and enter your age, that credit is yours," Gittens said.

For those that worked at home last year due to COVID-19, the new T777S form offers a flat claim of $400 (you must have worked at home 50 per cent of the time over four consecutive weeks). If you were self-isolating, or caring for someone who had to isolate, there is an Emergency Isolation Payment that you can apply for; a one-time benefit of $1,146 according to Gittens. 

Other credits and benefits for retirees and seniors include pension income splitting, which can significantly reduce your tax bill by splitting eligible private pension benefits with a lower income spouse. Gittens said tax filing for snowbirds and medical expenses are other areas that can impact seniors in particular.

"We have a tax treaty which allows Canadians to file a return here (must be a resident in Canada for 183 days a year) and claim a tax credit in the amount paid in U.S. taxes while living down south," said Gittens. "It was a wonky year, and many didn't travel south, but if you rented out your U.S. home or earned investment income, keep track of it all to make a claim."

Did you retire in 2020? Sell a principal home? Some deductions or benefits may apply. Don't forget medical expenses, an area Gittens says many seniors aren't taking full advantage of. For example, a senior living in a care facility can claim housekeeping, meals, attendant care--whatever they're invoiced for at year's end--as a medical expense. If you had to travel in 2020 for medical treatments, the accommodations, cost of gas etc. are all deductible medical expenses too, as are medication costs and health insurance premiums.

"The challenge comes with those who are also eligible for the Disability Tax Credit. You have to choose between that and the medical expenses deduction--whichever option benefits you most," Gittens said. "That's where a tax professional comes in handy. They can help determine all the credits and benefits you're entitled to, over the phone or through a virtual meeting. The senior has to be able to upload all their slips, and then we can do the return online with them."

Gittens encourages seniors to reach out by phone to simply ask the questions of a tax specialist--what slips do I need? What is the cost to prepare a return? (It starts at $60 for a simple return). Things like Registered Retirement Savings Plans (RRSP) which have to be converted to a Registered Retirement Income Fund (RRIF) at age 71, are a common source of concern, according to Gittens.

"You have to decide whether to take a monthly or yearly income from your RRIF. It's taxable income now, and the aim is to reduce that tax bill," she said. "To help those who were facing financial struggles in 2020, the government reduced the amount that must be taken from an RRIF starting at age 71, from five per cent to 3.96 per cent."

Of note, anyone who is or will be entitled to the Guaranteed Income Supplement (GIS) should avoid RRSPs, because each dollar withdrawn from the plan will result in 50 cents being deducted from benefits. It's another consideration to discuss with your financial planner.

If you received benefits from any of the pandemic-related programs in 2020, CERB (emergency response) CRSB (sickness benefit) or CRCB (caregiving benefit) the government will issue a tax reporting slip. Report that amount as income on your return, which will be taxable.

"It can provide peace of mind to see a tax preparation specialist, as 2020 had a lot of new benefits and potential claims for taxpayers," Gittens said. 

See hrblock.ca for more.