You’re right, in the year you turn 65, you can claim the federal $2,000 pension tax credit even if you are still working. There is a list of what qualifies as pension income, and RRIF income qualifies, which is the reason you want to convert some of your RRSP to a RRIF.
Unfortunately for you, James, your wife must be 65 in this case. Interestingly, there are qualifying pensions that do allow you to transfer the pension tax credit to a spouse under the age of 65, but RRIF income is not one of them. As you can see, there is very little tax owing at the lower income level when the combined federal and Ontario tax rate — 15 per cent and 5.05 per cent, respectively — is 20.05 per cent. The federal pension tax credit is calculated as 15 per cent of $2,000, or $300, which offsets the $300 of federal tax owing. In Ontario, the pension tax credit only applies to pension income up to $1,541, resulting in a credit of $78 . You still have to pay provincial tax on the remaining $459 at 5.
James, I’m not sure what your current income is or how long you plan to keep working. No question, there are tax savings for you here. If I was to complicate this and look for reasons for you to not convert a portion of your RRSP to a RRIF, here are three of them: