When a person starts getting a pension from an employer or from the government after retirement, is he supposed to pay income tax on that pension? Will he pay tax at his marginal tax rate? I would be living in Canada.
Yes pension income is taxed at your marginal rate, and you may be able to claim a $2,000 pension deduction. In addition pension income can be split with a spouse or common law partner by electing so on your tax return. When you begin to receive pension income from work the employers pension administrator will have you fill out a TD1 Form Federal and Provincial Form which will tell them how much tax to deduct at source. You can also elect to increase the amount of taxes deducted at source. If the taxes deducted at source are insufficient or if you have other income where source deductions have not been withheld then you may owe taxes on your tax return. If you owe over $3,000 in taxes when you file your return you will be requested to pay next years taxes owing in instalments. You can request the government to withhold Taxes on your Canada CPP benefits too.