Tax Planning for Retirees in Ontario

Most Canadians spend decades focused on accumulating retirement savings. Far fewer spend adequate time thinking about the tax side of drawing those savings down. In Ontario, a retiree with a $1.5 million portfolio and no tax strategy can pay substantially more in tax over 20 years than a retiree with the same assets and a well-structured plan. The difference is not luck — it is deliberate planning.

Understanding Your Retirement Tax Picture

Your marginal tax rate in retirement is determined by the combination of all your income sources: CPP, OAS, RRSP/RRIF withdrawals, employer pension payments, investment income, and any part-time work. Each source carries different tax treatment, and the order and timing in which you draw from each source has a direct impact on your annual tax bill.

Ontario's top combined federal-provincial marginal rate exceeds 53%, but most retirees are not in the top bracket. The key is to manage the thresholds that trigger tax spikes — particularly the OAS clawback zone (net income roughly $91,000–$148,000 annually, indexed), the point at which age and pension income credits phase out, and the bracket thresholds where marginal rates jump.

A good tax plan for retirement maps out projected income by year and intentionally manages the flow of withdrawals to keep annual net income in the most efficient range possible.

RRIF Withdrawal Timing and Sequencing

When you convert your RRSP to a RRIF, you are required to withdraw a minimum percentage each year based on your age. These withdrawals are fully taxable as income. The challenge: many retirees also have other income streams (CPP, OAS, pension), and large mandatory RRIF withdrawals can push them into higher brackets or trigger the OAS clawback.

One common strategy is to begin drawing down your RRSP — or converting a portion to a RRIF — earlier than required, before CPP and OAS begin. This spreads the taxable RRIF income over more years and at lower marginal rates, rather than concentrating large withdrawals in your late 70s when all income sources are running simultaneously.

Another consideration is whether to delay CPP. Taking CPP at 70 rather than 65 results in payments 42% higher — but it also means additional taxable income in later years when RRIF minimums are also rising. The right answer depends on your health, other income sources, and household tax situation.

The OAS Clawback and How to Manage It

OAS benefits begin to be clawed back at a rate of 15 cents per dollar once net income exceeds the annual threshold (approximately $90,997 in 2024, indexed to inflation). Full OAS is eliminated when net income reaches roughly $148,000.

For retirees with substantial retirement savings, avoiding or minimizing the clawback requires deliberate income management. Strategies include:

• Pension income splitting with a lower-income spouse to reduce individual net income
• TFSA withdrawals instead of RRIF withdrawals in high-income years (TFSA withdrawals are not included in net income)
• Charitable donations to create tax credits that reduce net income
• Timing large withdrawals carefully to avoid crossing the clawback threshold

The TFSA is particularly powerful in this context because withdrawals are completely tax-free and do not count toward net income for any income-tested benefits, including OAS and GIS. Prioritizing TFSA contributions during working years and preserving them as a tax-free withdrawal tool in retirement is one of the most effective strategies available.

Tax Credits Available to Ontario Retirees

Retirees are entitled to tax credits that meaningfully reduce their tax bill — but only if they are claimed correctly.

The Age Amount is a federal credit available at 65 that phases out as income rises. The Pension Income Amount allows up to $2,000 of eligible pension income to be credited at the lowest federal rate. Ontario also has a Senior Homeowners' Property Tax Grant and a Senior Care Credit in some circumstances.

Retirees with eligible medical expenses can claim the Medical Expense Tax Credit, which becomes increasingly relevant with age. And the Caregiver Amount is available for those supporting a dependent parent or spouse with a disability.

Many of these credits are income-sensitive, meaning the value you receive depends on keeping your net income within certain ranges. This is another reason why structured income planning — not just reactive withdrawal — makes a significant financial difference over a long retirement.

Starting the Conversation Early

The best retirement tax plans are not built in the year you retire — they are built five to ten years beforehand, when there is still time to make contributions to TFSAs, shape the size of your RRIF, and plan spousal strategies.

Marc Pineault is a financial planner with Pineault Wealth Management in London, Ontario. If you want to build a tax-efficient retirement income plan before or after you retire, visit pineaultwealthmanagement.com to get started.

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.