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Gabriel Lalonde
May 18th, 2023

Does The Bridge Benefit Qualify For The Non-Refundable Pension Tax Credit?

Canada’s tax system can be challenging. Sometimes, it’s hard to know what you can and can’t claim. You don’t want to make mistakes on your tax return, and you want to claim everything you’re entitled to. Early retirees often ask whether the bridge benefit qualifies for the non-refundable pension tax credit. Here, we’ll look at what a bridge benefit is, who qualifies for it, if it differs from pension income and if it qualifies for the non-refundable pension tax credit, also known as the pension income tax credit (PITC).

Bridge Benefits and the Non-Refundable Pension Tax Credit

Bridge benefits are typically only available to federal or provincial government employees with a defined benefit pension plan. Not all provinces offer a bridge benefit, but most do.

The bridge benefit supplements your pension income from early retirement to age 65. It ‘bridges’ your pension income from when you retire until you turn 65 and can start collecting the unreduced Canada Pension Plan amount (CPP). This benefit is available to retirees under 65 who have it as part of their pension plan.

Some pension plans offer you the choice of bridging your pension or not. Depending on the terms of your pension plan, accepting the bridging payment may impact your pension later.

Other plans offer no choice. It’s simply part of your package if you retire before 65.

How long does a bridge benefit last?

You can receive your bridge benefit when you retire as long as you’re less than 65 years of age. Your bridge benefit will end:

  • In the month after you reach the age of 65
  • If you become eligible to receive CPP/QPP disability benefits
  • You pass away

You can collect a reduced CPP amount as early as 60. Collecting CPP before you turn 65 will not impact your bridge payments, and they will continue until you reach 65.

The non-refundable pension tax credit

The tax system provides tax credits to reduce your taxable income. One of these tax credits is the non-refundable pension tax credit, which provides a maximum $2,000 tax credit for those with pension income. The eligibility for this credit varies based on your age and the type of income you receive. Understanding these criteria can help you plan your taxes effectively.

Retirement income that qualifies for the non-refundable pension tax credit differs depending on whether you’re younger or older than 65. Here’s a list of the types of income that qualify for the PITC for retirees less than 65 years of age:

  • Life annuity payments from a pension plan or superannuation
  • Some foreign pension plan payments
  • Income that comes from splitting your pension payments with your spouse
  • RRIF payments you receive due to the death of your spouse or common-law partner

Does the bridge benefit qualify for the non-refundable tax credit?

The answer to this question is yes! The bridge benefit is considered pension income for tax purposes. You report it on the 31400 line of your tax return. The calculations for the PITC will include your bridge benefit.

The non-refundable pension tax credit is a valuable tool that provides tax relief to retirees, including those who retired early and are bridging their pension. This credit can reduce some of the financial burden of taxes, allowing you to enjoy your retirement without unnecessary stress.

Get Helpful Pension Advice

Transitioning from employment to retirement can be overwhelming, but you don’t have to navigate it alone. There’s a lot to know when considering how to fund your retirement. Some common questions are if you qualify for a bridge benefit, when you should claim CPP and how long you should keep your RRSPs. Taxes can impact your income and savings, too.

At MDL Financial Group, we have worked with people considering retirement and retirees for more than 30 years, and we will work with you to plan a great retirement. We welcome the opportunity to help you with your goals so you can live your retirement dream. Please call us at 613-416-9649 or fill out our online contact form.

If you liked this article, here are three more you may find interesting:

https://mdlfinancialgroup.ca/tax-opportunities-in-retirement

https://mdlfinancialgroup.ca/how-to-offset-taxes-on-rrsp-withdrawals-using-the-rrsp-meltdown-strategy/

https://mdlfinancialgroup.ca/swift-transition-from-accumulation-to-decumulation/

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