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CPP, OAS, pensions and RRSP or RRIF withdrawals are all taxable income. Your RRSP has to be closed or turned into a RRIF by the end of the year you turn 71, and TFSA withdrawals aren't taxed.
In Canada, CPP, OAS, employer pensions and RRSP or RRIF withdrawals all count as taxable income, and most of them arrive with little or no tax taken off. TFSA withdrawals are not taxed. Your RRSP must be closed or turned into a RRIF by the end of the year you turn 71, so the first year of retirement needs a plan for setting tax aside.
Which retirement income is taxable?
CPP, OAS, employer pensions and RRSP or RRIF withdrawals all count as income, and so does interest outside a TFSA. A TFSA withdrawal doesn’t, which is why people often use it to top up their income without raising their tax. Check yours with the RRSP withdrawal tax calculator and the TFSA calculator. The retirement income and benefits page shows how each source is taxed.
When should I start CPP and OAS?
You choose, and the timing changes the amount you get for the rest of your life. The government’s CPP retirement pension page points to the timing question and the advantages of waiting. Try the CPP calculator and the OAS calculator before you decide, then look at the CPP page for the current maximums. OAS can be reduced when your net income is high, and the article on the OAS clawback explains how that works.
What happens to my RRSP at 71?
It has to be closed or turned into a RRIF by the end of the year you turn 71. Plan the withdrawals, because a big lump in one year can push you into a higher bracket. The RRIF withdrawal tax calculator shows the minimum and the tax withheld at source. The RRSP page explains the basics, and the savings and retirement guide goes wider.
Can couples split pension income?
In many cases, yes, and it can lower the tax for the couple, since each of you pays at your own rate. The rules depend on the type of income and your ages. The pension income splitting calculator shows the effect for your own numbers, and a spousal RRSP is the long-range version of the same idea.
Why does the first year trip people up?
Picture Sam in Winnipeg, who retires in June and starts drawing a pension, CPP and a few RRSP withdrawals. Each payer treats the money on its own, so no one looks at the total. Come tax time, the sum can land in a higher bracket than the slips suggested. Set aside a share of every payment as you go, and use the retirement income tax calculator for a ballpark of the full year. If you owe a lot each year and nothing is taken off at the source, the CRA may ask for quarterly instalments.
What should I keep handy?
Before filing your first retirement-year return, pull out the document checklist, the tax calendar and the filing guide. If you’ve moved to another province, the province index lists each one’s rules.
What you’ve read is a general overview. It can’t see your pension slips or your family, so it isn’t advice for your own return. We don’t prepare returns and we don’t speak for the CRA. For anything big, such as a RRIF conversion, check with the CRA or a qualified preparer, and follow a CRA letter over this page.
Frequently asked questions
Are CPP and OAS taxable?
Yes. Both are taxable income. OAS can also be reduced if your net income is high, so check the current threshold on the CRA site.
What happens to my RRSP?
You must close it or turn it into a RRIF by the end of the year you turn 71. Withdrawals from either are taxable income.
Can I split pension income with my spouse?
In many cases you can, which can lower the tax for the couple. The rules depend on the type of income and your ages.
Do retirees pay tax instalments?
Some do. If you owe a lot of tax each year and nothing is taken off at the source, the CRA may ask for quarterly instalments.
Is a TFSA withdrawal taxable in retirement?
No. A TFSA withdrawal is not counted as income, so people often use it to top up their cash flow without raising their tax. Interest earned outside a TFSA is taxable.