How Canada taxes a retirement plan

We model these and we know we do not get them exactly right. Where the size could be measured, it is stated.

• The law stops the clawback once it has taken back the whole of Old Age Security, the flat state pension, about 9,024 a year, which happens at about 155,109 of income. We keep clawing back up to Old Age Security plus the earnings-related public pension. Below 155,109 we are exact. At 220,000 we charge about 18,701 where the law charges 9,024, so the tax is overstated by about 9,677 a year.

  Your real tax is lower/up to $9,677 a year/a retiree on both public pensions with income above about 155,000

• You can now tell us which province or territory you live in, and we price you there. If you skip the question we price you as an Ontario resident, and Ontario sits near the cheap end, so skipping understates the bill for most of the country. On one worked case at 100,000 of income the spread between the cheapest province and the dearest is about 4,983 a year. Quebec is not one of the choices and needs its own treatment.

  Your real tax is higher/up to $4,983 a year/anyone who skips the province question, and anyone in Quebec

• Choosing your province changes your tax rates but not your provincial allowances. Every province gives its own tax free slice of income, its own extra amount from 65 and its own allowance on pension income, each credited at its own lowest rate, and we give everyone Ontario's. Ontario's are worth less than almost every other province's, so outside Ontario the tax we show is too high: by about 1,480 a year per person in Saskatchewan and 1,170 in Alberta on the tax free slice alone, and by very little in British Columbia.

  Your real tax is lower/up to $1,484 a year/every household outside Ontario that names its province

• Ontario charges a health premium on income that no other province charges, and we charge it to everybody. Choosing your province changes your tax rates but not this. It is 300 a year at 25,000 of income and 750 a year from 100,000 upward, and it is not reduced by any of your allowances, so someone outside Ontario who owes no income tax at all is still shown a bill of 300.

  Your real tax is lower/up to $750 a year/every household outside Ontario, which is eleven of the twelve jurisdictions

• The pension income allowance now goes only where the law gives it: on a workplace pension at any age, and on withdrawals from a RRIF or life income fund from 65. Old Age Security, the Canada Pension Plan and RRSP withdrawals never earn it. One gap is left: an annuity bought with registered savings earns it here before 65, where the law gives it then only after a partner's death.

  Your real tax is higher/up to $371 a year/anyone under 65 with an annuity bought from registered savings

• An annuity bought with money from registered retirement savings earns the pension income allowance and can be split with a partner only from 65, or earlier if you receive it because your partner died. A workplace pension earns both at any age. We give both to everyone, so a registered annuity received before 65 shows about 371 a year too little tax.

  Your real tax is higher/up to $371 a year/anyone under 65 receiving an annuity bought with registered retirement savings

• The clawback of Old Age Security, the flat state pension, comes off your income before the tax scale is applied, and we apply the scale to your income before it. So we show slightly too much tax, and the bite on your next dollar inside the clawback band reads as 15 points where it is nearer 10. On one worked case at 100,000 of income the overstatement is about 208 a year.

  Your real tax is lower/up to $208 a year/anyone whose income passes the clawback threshold of about 95,000

• Canada's dividend credit only covers dividends from Canadian companies, and we apply it to every dividend you hold. In a portfolio tracking a world index well under a fifth of the dividend flow qualifies, so we hand you roughly three times the credit you would really get and your tax is understated. A foreign dividend is taxed in full instead, with relief only for the tax the other country already took.

  Your real tax is higher/anyone holding global shares or funds in an ordinary Canadian account

• Each year the plan takes the legally required share out of a RRIF or life income fund: one divided by 90 less your age before 71, then a table rising from 5.28 percent to 20 percent at 95. Nothing is due in the year the fund is set up. If you elected to use a younger partner's age when you set it up, tick that on the account. An RRSP becomes a RRIF at 71, or at the earlier age you choose.

  Your real tax is lower/holders of a qualifying RRIF set up before 1993

• A loss on investments can only be set against gains on investments, never against pension income, and that much we do model. Two parts are missing and they pull opposite ways: a loss can be carried back three years to refund tax already paid, which we cannot show, and a loss is disallowed if you buy the same thing back within thirty days, which we do not apply. It also means a crash hands you losses that cannot soften the state pension clawback.

  Could go either way/anyone selling investments at a loss in an ordinary Canadian account

• We tax a Canadian couple as two separate people and apply pension income splitting to workplace and private pensions, which a one-pension couple elects. Withdrawals from retirement accounts are split in the proportion you give for your savings, which is right once you are both 65 if you split them evenly. The spouse or partner amount, a credit for supporting a partner with little income, is not applied, so a one-income couple is shown more tax than they pay.

  Your real tax is lower/couples where one partner has much less income than the other

• A life income fund can pay at most a yearly maximum. We use the federal formula for every fund, at the long-term bond rate published last November held steady, which is lower than Ontario's rule in a year your fund earned well. Small funds can be paid out whole from 55. A restricted federal fund's one-time unlock of half is not offered, and a cash-value life insurance policy or a prescribed annuity is entered as an ordinary account or a pension stream.

  Your real tax is lower/holders of a life income fund under a provincial rule, and of the mapped products

These exist in law and we leave them out, usually because applying them would need a question we do not ask.

• Ontario charges a surtax on top of its own income tax, 20 percent of that tax above 5,818 and a further 36 percent above 7,446. We hold one combined federal and provincial figure and cannot charge on the provincial half alone, so it is absent. It is nothing at modest incomes and grows quickly: about 75 a year on one worked case, and about 6,066 a year at 200,000 of taxable income.

  Your real tax is higher/up to $6,066 a year/an Ontario retiree whose taxable income runs well into six figures

• If you bought an annuity with money that was already taxed, only the interest part of each payment is income. The rest is your own money coming back and is not taxed. We cannot take that part out yet, so do not mark such an annuity as before tax: enter what you keep after tax instead. Marked as before tax, the whole payment is taxed, about 3,500 a year too much on a 21,000 annuity bought for 250,000.

  Your real tax is lower/up to $3,511 a year/anyone receiving an annuity bought with already-taxed savings who enters it as before tax

• Every province gives its own credit for dividends from Canadian companies, and we give Ontario's to everyone. Choosing your province fixes your tax rates but not this credit. Ontario's is near the top of the range, so someone living elsewhere with a large holding of Canadian shares is likely shown slightly too little tax. On 10,000 a year of dividends each percentage point of difference is worth about 138 a year.

  Your real tax is higher/up to $635 a year/anyone outside Ontario holding Canadian dividend-paying shares outside a registered account

• Ontario has a reduction that cancels a small provincial tax bill outright, worth up to 600 a year and gone once that bill passes 600. It applies to the provincial half alone and we hold one combined figure, so we leave it out and show too much tax. It only reaches someone whose income is low enough to still owe a little Ontario tax, and at the lowest income we checked the ordinary allowances had already cancelled the tax anyway.

  Your real tax is lower/up to $600 a year/an Ontario retiree on a low income who still owes a small amount of provincial tax

• Quebec is not a province this page can stand in for. It has its own return on its own scale, its own pooled age and retirement credits, its own public pension, a health services charge of up to 1,000 a year and a drug plan premium of about 766, set against a 16.5 percent cut in federal tax worth about 2,275 on one worked case. Of the provinces measured it came out the dearest, so we show a Quebec retiree too little tax.

  Your real tax is higher/anyone retiring in Quebec

• We treat every dividend as the kind a listed Canadian company pays, which carries a generous credit for the tax the company already paid. A dividend from your own small private company carries a much smaller one and is taxed more heavily than we show. There is no way to enter one here, and a listed portfolio never receives them.

  Your real tax is higher/anyone paying themselves dividends out of their own private company

• Canada recomputes your bill a second way, at 20.5 percent on a base that counts the whole of a capital gain rather than half, with most allowances counted at half and an exemption of about 181,440, and charges whichever comes out higher. We do not model it, so a year with an unusually large realised gain could cost more than we show. Anything paid under it comes back against ordinary tax over seven years, and it is nowhere near binding on the cases we checked.

  Your real tax is higher/anyone realising an unusually large capital gain in a single year

• A temporary credit running from 2025 to 2030 tops up allowances for people whose claims are unusually large, and we do not apply it, so the tax we show is a little high. For a typical retiree it is worth nothing at all: allowances of about 27,660 against a threshold of 58,523.

  Your real tax is lower/someone with unusually large allowance claims, which is almost no retiree

Separate tax systems, or rules that only bite outside a retirement plan.

• When you die everything you own is treated as sold that day and the whole built-up gain is taxed in your final return, unless it passes to a surviving partner at its original cost. So the first death in a couple usually costs nothing and the second is one large bill. We stop at the end of the plan and never charge it, so whatever we show you leaving behind is the amount before that tax.

  Your real tax is higher/anyone planning to leave investments rather than spend them

• Property tax is a municipal charge, running from roughly 0.28 percent of assessed value in Vancouver to 2.6 percent in Winnipeg, and it is not a tax on your portfolio. Enter your own bill as a housing cost rather than expecting us to work one out. Two more sit outside the plan: British Columbia's extra school tax on homes above 3 million, and Ontario's fee for settling an estate, 1.5 percent of what it holds above 50,000.

  Could go either way/any Canadian homeowner, and the estate of anyone who dies resident in Ontario

• There is nothing to leave out here. Canada has no wealth tax, no estate tax, no inheritance tax and no gift tax at any level of government. What it does instead is tax the built-up gain on everything you own in your final return, which is a separate limitation of its own.

  Could go either way/anyone expecting to leave money behind, or to receive it

• United States shares and funds hand 15 percent of their dividends to the United States before you see the money, and where you hold them decides whether you get it back. Inside registered retirement savings a treaty makes it nothing. Inside a tax free savings account it is 15 percent and gone for good. In an ordinary account Canada credits it back. It is a United States tax, so it is not in the Canadian rules we model and we never charge it.

  Your real tax is higher/anyone holding United States shares or funds in a tax free savings account