For many Canadians, retirement is a long-awaited milestone—a transition from the daily grind to a period of leisure and personal fulfillment. 

However, the financial landscape changes dramatically once the bi-weekly paycheck stops. 

In Canada, the tax system provides several benefits for seniors, but it also contains potential pitfalls like “clawbacks” that can erode savings if not managed carefully.

1. Navigating Sources of Retirement Income

The first step in tax planning is identifying how different income streams are taxed. Not all dollars are created equal.

• Government Pensions (CPP and OAS):

• CPP/QPP: These benefits are fully taxable at your marginal rate. You can “share” your CPP with a spouse to lower the household tax bill if both are at least age 60 and receiving benefits.  https://www.canada.ca/en/services/benefits/publicpensions/cpp/share-cpp.html

• OAS: While taxable, OAS carries the risk of the OAS Recovery Tax (the “clawback”). For the 2026 tax year, if your net income exceeds $95,323, you must repay 15 cents of OAS for every dollar over that threshold.

• Registered Accounts (RRSP and RRIF):
  By age 71, you must convert your RRSP into a Registered Retirement Income Fund (RRIF).
  • Taxation: Every dollar withdrawn is taxed as ordinary income.
  • Minimums: The government mandates a minimum withdrawal percentage based on your age. These forced withdrawals can inadvertently push you into a higher tax bracket or trigger the OAS clawback.

• The TFSA Advantage:
  The TFSA is a retiree’s best friend. Withdrawals are completely tax-free and do not count toward your “net income” when calculating OAS clawbacks or the Age Amount credit. 

2. Strategic Income Splitting

Pension Income Splitting is a powerful tool. If one spouse has a higher income, they can “allocate” up to 50% of eligible pension income to the lower-earning spouse.

• How it works: This is a paper transaction (Form T1032) and does not require a physical transfer of cash.
• Eligible Income: For those 65+, income from a RRIF, life annuity, and employer pensions qualifies. Under 65, generally only employer-sponsored pension income qualifies.

3. Essential Tax Credits for Seniors (2026 Estimates)

Credit	Description	2026 Context
Age Amount	Available to those 65+.	The maximum amount is $9,208. It begins to phase out at an income of $44,119 and is reduced to zero once net income reaches $105,506.
Pension Income Amount	Credit on the first $2,000 of eligible pension income.	Effectively makes the first $2,000 of pension income tax-free.
Medical Expense Credit	For health costs (dentures, glasses, care).	Claim expenses exceeding the lesser of 3% of income or $2,890.
Disability Tax Credit	For severe, prolonged impairment.	A significant credit of $10,341 that can also unlock provincial benefits.

4. The “Order of Withdrawal” Strategy

A common mistake is withdrawing from accounts randomly. A tax-efficient strategy often follows this hierarchy:

1. Meet RRIF Minimums: This is mandated, so start here.
2. Non-Registered Accounts: Capital gains are taxed more favorably than income (50% inclusion rate on the first $250,000 annually).
3. TFSA and RRSP/RRIF Top-ups: Use the TFSA to bridge cash flow needs without increasing your taxable income. Alternatively, if you are in a very low bracket, consider a “RRIF meltdown”—withdrawing slightly more than the minimum now to prevent a massive tax hit at age 90 or upon death.

5. Estate Planning: The Final Tax Bill

Canada has a “deemed disposition” at death, meaning the CRA treats you as if you sold all your assets the day before you passed.

• RRIF Collapse: Without a spouse, the entire RRIF value is added to your final year’s income, potentially triggering a tax rate over 50%.
• The Spousal Rollover: You can defer this tax by naming your spouse as the “successor annuitant” or beneficiary.
• Principal Residence: Your home remains exempt from capital gains tax, making it a highly efficient asset to pass to heirs.

Tax planning in retirement is about bracket management, not just deferral. By balancing RRIF withdrawals with TFSA flexibility and utilizing pension splitting, you can significantly lower your lifetime tax bill. Because tax laws and thresholds change annually, it is wise to review your strategy at the start of every year.