Pension credit

The first $2,000 of eligible pension income qualifies for a non-refundable tax credit. The type of pension income that qualifies for this credit differs depending on whether you were 65 or older in the year. If you were under 65 as of December 31, 2015, “qualifying pension income” includes life annuity payments out of a superannuation or pension plan and certain payments received as a result of the death of a spouse or common-law partner.

If you were 65 or older in 2015, other defined payments such as lifetime annuity payments out of your RRSP, deferred profit sharing plan (DPSP) or RRIF also qualify for the pension credit. Qualifying pension income doesn’t include Canada Pension Plan (CPP), Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments.

Tax tip: If you don’t already benefit from the pension income tax credit and you’re 65 years of age or older, consider creating pension income by purchasing an annuity that yields $2,000 of interest income annually. Alternatively, you can use some of the funds in your RRSP to purchase an annuity or RRIF to provide you with $2,000 of annual pension income.