Last Updated on November 16, 2024 by Finance Faded
As we conclude our exploration of the first pillar of Canada’s retirement system, it’s essential to revisit its core components: Old Age Security (OAS), Guaranteed Income Supplement (GIS), Allowance, and the Age Amount. Together, these programs form a robust safety net for Canadian seniors, ensuring a minimum income level while offering tax relief. This article focuses on the Allowance and the Age Amount, detailing their purpose, eligibility criteria, and key considerations.
Disclaimer
The information shared in this article reflects the current laws, regulations, and rules applicable to Canadian residents as of the date of publication. While we strive for accuracy, please note that these rules may evolve, which could impact the relevance of the details provided. The content is intended for general informational purposes and should not be taken as personalized advice. For guidance tailored to your specific financial, legal, tax, or accounting situation, it’s essential to consult with qualified professionals in the relevant field.
I. The Allowance: Bridging the Gap for Low-Income Couples
Introduced in 1975, the Allowance is a targeted benefit designed for low-income individuals aged 60 to 64 who are the spouse or common-law partner of a GIS recipient. This benefit effectively acts as a financial bridge, helping households where one partner is not yet eligible for OAS or GIS.
Eligibility Criteria for the Allowance:
To qualify for the Allowance, you must:
- Be aged 60 to 64 (until the month you turn 65).
- Reside in Canada.
- Be a spouse or common-law partner of a GIS recipient.
- Meet income thresholds.
The Allowance is means-tested, which means your eligibility depends on your household income. Like the GIS, it ensures that low-income seniors or their partners have access to basic financial support, upholding the broader goal of the first pillar—providing a minimum income floor for seniors.
II. The Age Amount: A Tax Credit for Seniors
The Age Amount is a non-refundable tax credit aimed at reducing the tax burden for Canadians aged 65 and older. Unlike benefits such as OAS or GIS, the Age Amount doesn’t involve direct payments; instead, it lowers the amount of tax seniors owe, helping them retain more of their income.
A. Eligibility
To claim the Age Amount, you must:
- Turn 65 by the end of the tax year.
- Have a net income below the maximum threshold:
- $98,308 for 2023.
- $102,925 for 2024.
The maximum claimable amount for 2023 is $8,396, but this is gradually reduced (clawed back) as your net income exceeds $42,335.
How the Age Amount Clawback Works
The clawback mechanism ensures that the Age Amount primarily benefits low- to middle-income seniors. It reduces the tax credit by 15% of the income exceeding the threshold. Here’s an example:
Assume that your net income from line line 23600 of your 2023 income tax return is $60,000. Note in this example that your net income is more than $42,335, but less than $98,309. Thus, you can calculate your Age Amount tax credit using line 30100 on the Federal Worksheet.
Otherwise, you can subtract the $42,335 from your net income: $60,000 – $42,335 = $17,665.
Since the Age Amount is clawback at 15%, you need to multiply the above amount by the clawback rate: $17,665 x 15% = $2,649.75
Then, subtract that number from the maximum claim amount to calculate your amount: $8,396 – $2,649.75 = $5,746.25.
This $5,746.25 reduces your taxable income, easing your overall tax burden.
Key Points to Remember:
- If your net income is $42,335 or less, you can claim the full $8,396.
- The Age Amount is fully eliminated when your income exceeds $98,308 (2023 threshold).
If you have questions regarding your Allowance or Age Amount tax credit application, contact Service Canada at 1-800-277-9914 (Canada/US) or 1-613-957-1954 (outside Canada/US). For questions about your taxes, contact the Canada Revenue Agency at 1-800-267-5177 (Canada/US) or 613-952-3741 (all other countries).
B. Provincial and Territorial Age Amounts
In addition to the federal Age Amount, each province and territory (except Quebec) offers a similar tax credit. These credits are calculated in the same way, but the amounts and thresholds may vary.
Quebec’s Approach:
Quebec combines the taxpayer’s and spouse’s credits into a single calculation, using family income to determine eligibility. This unique approach simplifies the process for couples filing jointly but may reduce individual benefits for higher-income families.
To claim your provincial Age Amount, enter the relevant amount on line 58080 of your provincial or territorial Form 428.
