Income tax and deductions from pension payments

How can I figure out how much income tax I will pay during retirement?

To estimate how much income tax you will pay during retirement, add up all your expected sources of income to find your total taxable amount. Use the Canada Revenue Agency’s deductions online calculator to calculate the amount of your deductions.

  • CPP/QPP and OAS pensions are taxable income, but income tax is not deducted unless you request it.

Anytime your gross income changes, you need to review your income tax situation.

Everyone’s financial situation is unique. You may wish to discuss your retirement plans and retirement planning options with a personal financial advisor. You are responsible for any costs associated with seeking such advice. If you don’t have a financial advisor, the Employee Assistance Program (EAP) can help you.

Are some deductions from my pension mandatory?

Income tax is the only mandatory deduction from your pension. The income tax rate will be the one indicated on your Personal Tax Credits Return (TD-1) and provincial tax forms that you will complete as part of your Retirement Kit.

You must indicate if you want to have more tax deducted, especially if you receive other income, including non-employment income such as Canada Pension Plan or Quebec Pension Plan benefits, or old age security pension.

Are some deductions from my pension optional?

Some deductions are optional. For example,

  • Basic life insurance premiums
  • Monthly instalments to pay for elective service

How can I calculate my net income?

First, add up all your sources of income, then deduct your mandatory and optional deductions. The result will be your net income.

Use this worksheet to calculate your day-to-day expenses now and those you expect to have during retirement. This will give you an idea of how much income you will need when you retire.