John Hughie
Retirees with high incomes or diverse revenue sources can sometimes trigger Canada Revenue Agency (CRA) scrutiny—especially as the agency’s auditing tools become more sophisticated. These are the five most common “red flags” that may attract attention—and how to avoid them.
1. Unreported Income – Small Omissions Can Be Costly
Many seniors receive income from multiple places: pensions, rental properties, investments, or part-time work. Even minor unreported amounts—like forgetting to include a T5 investment slip—can prompt a review.
Moreover, if your income exceeds the threshold for Old Age Security (OAS) recovery, the CRA watches closely. Failing to report income properly may result in reassessments or clawbacks.
2. Errors in Pension Income Splitting
Sharing pension income with a spouse can reduce household tax, but it must be done precisely. Common issues include:
- Forgetting to complete the correct form
- Declaring different amounts on each spouse’s return
CRA will pick up such discrepancies through cross-checks, potentially triggering further examination.
3. TFSA or RRIF Missteps
Tax-Free Savings Accounts (TFSAs) and Registered Retirement Income Funds (RRIFs) are excellent retirement tools—but errors happen:
- Overcontributing to your TFSA
- Aggressive trading that resembles business activity
- Including non-qualified investments
- Withdrawing too much or too early from a RRIF
These mistakes can lead not just to penalties, but also to audit attention.
4. Too-Large Claims for Deductions or Credits
Sometimes, well-meaning seniors overstretch when claiming deductions—like medical expenses or charitable donations. If your claim is significantly larger than what’s typical for your income, the CRA may ask for proof or initiate a reassessment.
5. Incorrectly Claiming the Age Amount Credit
The Age Amount tax credit offers financial relief to those 65+, but it phases out once income exceeds a certain level.
If you continue claiming this credit past the eligibility threshold, your return may be red-flagged—often leading to reassessments and repayment requests.
CRA Red Flags for Wealthy Seniors
| Red Flag | Potential Impact |
|---|---|
| Unreported income | Mismatch with slips—leads to reassessment |
| Error in pension splitting | Spousal discrepancies—flagged by CRA cross-checks |
| Misuse of TFSA/RRIF | Overcontribution or misreporting—risk of penalties |
| High deductions or credits | Outliers compared to income—invites scrutiny |
| Invalid Age Amount claim | Ineligible claim—triggers reassessment |
How High-Income Seniors Can Stay Audit-Ready
- Document everything: Keep T-slips, receipts, and clear records
- Coordinate with your spouse: Verify both returns align perfectly
- Use TFSA/RRIF carefully: Know your limits and restrictions
- Claim honestly: Only claim expenses you can support
- Check eligibility annually: Especially for deductions like the Age Amount
Wealthy seniors with multiple income sources should pay extra attention during tax season. The CRA’s review systems are now more advanced, and even unintentional errors can result in audits or adjustments.
Stay on top of your income reporting, filing details, deductions, and credits. A few extra minutes of organisation and review could save you future hassle—and help protect your retirement funds.
Be proactive. Double-check your tax filings. And enjoy peace of mind in your golden years.
FAQs
What is the most frequent filing error by seniors?
Forgetting to report all income, like dividends or freelance earnings. Even a small amount can raise questions.
Can CRA treat frequent TFSA trades as business activity?
Yes. A TFSA used like a trading account could be considered a business by the CRA, resulting in taxable income.
How do I avoid pension-splitting errors?
File the correct forms for both spouses and confirm that reported split amounts are identical across returns.
