How is pension income taxed in Ontario for retirees?
Most pension income received by Ontario residents is fully taxable. This includes Canada Pension Plan (CPP) payments, Old Age Security (OAS), private employer pensions, RRSP/RRIF withdrawals, and annuity payments. The amounts are included in your total income and taxed at your marginal rate, with Ontario provincial tax added on top.
CPP and OAS payments are reported on T4AP and T4A(OAS) slips respectively; employer pension payments come on a T4A or T4P slip. Unlike employment income, pension income is not subject to CPP contributions, but the same income tax rules otherwise apply.
Canada offers a pension income tax credit (up to a credit on the first $2,000 of eligible pension income) at the federal level, and Ontario has a corresponding provincial pension income amount. These non-refundable credits reduce tax on qualifying pension receipts. Additionally, eligible pension income can be split with a spouse for tax purposes under the federal pension income-splitting rules, potentially reducing the household's combined tax bill. OAS may be subject to a clawback (repayment) if your income exceeds a CRA-set threshold. A tax professional can help model the most tax-efficient drawdown strategy for your retirement income.
Key takeaways
- CPP, OAS, RRSP/RRIF withdrawals, and employer pensions are all fully taxable income.
- A pension income tax credit (federal + Ontario) applies to the first $2,000 of eligible pension income.
- Eligible pension income can be split with a spouse to reduce combined tax.
- OAS is subject to a clawback if income exceeds a CRA threshold.