The federal pension income amount can reduce tax for someone with eligible pension income. It is not a $2,000 cash payment to every retiree, and not every payment described as a pension qualifies.
Start with the source, type and circumstances of each payment.
Match the income to the eligibility chart
The CRA provides separate charts for people under 65 and those 65 or older at year-end. Certain lifetime pension benefits can qualify before 65. Other payments, including many RRIF amounts, depend on age or a qualifying survivor situation.
CPP, QPP and OAS do not qualify for this amount. Neither does an ordinary lump-sum RRSP withdrawal simply because the person has retired.
For foreign pensions, review the plan and treaty treatment. An amount exempt in Canada under a treaty and income from a US individual retirement account do not qualify merely because they appear in the retirement file.
Calculate the amount, then the credit
The federal claim is generally limited to the lesser of $2,000 and eligible pension income. It is a non-refundable tax credit calculation, not a deduction of $2,000 from taxable income and not a guaranteed $2,000 refund.
For example, $1,200 of qualifying income supports at most a $1,200 base for this federal credit. The tax reduction is calculated using the applicable credit rules, not by refunding the entire $1,200.
Provincial pension amounts have their own calculation and should be checked separately.
Recheck eligibility after pension splitting
An amount eligible for splitting does not necessarily qualify for the pension credit in the receiving spouse's hands. Age differences and the payment type can matter.
Keep the tax slips, relevant plan description and any T1032 election together. Review the credit again when income changes from an employer pension to registered withdrawals, or when a spouse starts receiving an allocated amount. The label on the bank deposit is not enough.
