The Conservative’s March 19 federal budget claimed to afford significant tax support to Canadian seniors. In fact, it offers a lot to the wealthiest of seniors and provides little or nothing for the majority of Canadian seniors who live close to or below the poverty line.
The only change which offers anything to low income seniors is the $1,000 increase in the age credit, which will provide annual tax savings of up to $300, and in most cases considerably less, to low and middle income seniors. It is far short of what is needed even to bring all Canadian seniors up to the poverty line.
The big cost item, an estimated $675 million in 2007 alone and rising amounts into the future, is the splitting of pension and RRSP income for senior couples. Since it applies only to income from registered pension plans and RRSPs (for retirees over 65), this offers nothing to the majority of seniors with little or no income from those sources.
Only better-off senior couples (where one partner has a much better pension than the other) will be able to take advantage of this change -- and the higher the income, the bigger the pay-off. According to the budget documents, for a couple, where one partner has no pension income, the tax savings are as follows:
About 90% of seniors have private pension incomes of $20,000 or less. The Conservatives call this “Tax Fairness”. It looks more like giving a lot to the small group who are already relatively well-off, and little or nothing to most seniors.
The budget contained a couple of other items of particular relevance to seniors. The age by which seniors must start to draw from Registered Pension Plans and RRSPs is being raised from 69 to 71 – a change which is likely to affect relatively few seniors, since most don’t want to, and can’t afford to wait even to 69 to draw their benefits.
The government also proposes to amend the income tax act to allow pensioners to draw up to 60% of accrued benefits while still working and earning pension credits. This will facilitate “phased retirement” for those who are over 55 and eligible for an unreduced pension. It will not come into force until 2008 as the technical rules must be worked out. Most likely, it will be used primarily for a handful of executives and senior employees for whom it will provide further pension-sweetening opportunities. If you listen carefully, you can already hear the calculators of the executive compensation consultants hard at work figuring out how to max out the tax advantages.
