Canadian retirees face several hidden pitfalls from the Canada Revenue Agency (CRA) that can reduce their Canada Pension Plan (CPP) benefits. It’s essential to understand these traps and maximize retirement income while avoiding costly mistakes. Here are four CRA traps that could reduce your CPP payments.
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Avoid taking CPP benefits early
Most Canadians start collecting CPP at 65, but you can begin as early as 60 or wait until 70. Your monthly payment drops by 0.6% for each month before your 65th birthday. That means claiming at 60 cuts your benefit by 36% for life. For every month you delay the CPP past 65, your payment increases by 0.7%. So, wait until 70 and receive 42% more each month compared to starting at 65.
Income-based clawbacks
Once your net income exceeds $93,454 in 2025, the CRA begins reducing Old Age Security (OAS) payments proportionally. Maximum CPP benefits combined with other income sources can easily push retirees over this threshold, triggering unexpected benefit reductions.
CPP taxes
While CPP payments are fully taxable, high pensionable earnings result in larger tax bills, effectively reducing net benefits. Working while receiving maximum CPP may require continued contributions without providing additional future benefits.
Contribution rules
Finally, misunderstandings of contribution rules lead to unnecessary overpayments. Some Canadians continue contributing to CPP even when reaching maximum pensionable earnings or planning to delay benefits until age 70, resulting in wasted contributions.
Smart retirees can sidestep these traps by using a Tax-Free Savings Account (TFSA) for retirement income. TFSA withdrawals do not count toward income thresholds, helping preserve full OAS benefits while complementing CPP payments without triggering clawbacks or higher taxes.
Supplement the CPP benefit with dividend stocks
The average CPP monthly payout in 2025 is $848.37, while the maximum is over $1,400. Canadian retirees can supplement their pension benefits with blue-chip dividend stocks to increase their monthly income over time.
One such TSX dividend stock you can consider owning in October 2025 is TC Energy (TSX:TRP). Valued at a market cap of $74 billion, TC Energy is an energy infrastructure giant that has raised its annual dividend from $2.26 per share in 2016 to $3.70 per share in 2024, yielding almost 5%.
TC Energy delivered strong second-quarter results, prompting management to raise full-year guidance, signalling that the pipeline and power company is capitalizing on surging North American natural gas demand.
The Calgary-based infrastructure operator reported a 12% year-over-year increase in comparable EBITDA (earnings before interest, tax, depreciation, and amortization) and lifted its 2025 outlook to between $10.8 billion and $11 billion, 9% higher year over year.
Management expects North American natural gas demand to grow by 45 billion cubic feet per day by 2035, up from a previous forecast of 40 Bcf per day. This structural demand increase stems from LNG exports, power generation growth, and industrial expansion.
Electrification, coal-to-gas conversions, and the proliferation of artificial intelligence data centres are accelerating the need for reliable baseload power, creating opportunities across TC Energy’s footprint.
TC Energy is currently engaged in commercial discussions with more than 30 counterparties across the data centre value chain, several of whom indicate they may require greater capacity than initially planned.
The company expects to place approximately $8.5 billion of assets into service during 2025, roughly 15% below budget. Projects placed in service during the quarter included Southeast Gateway and the East Lateral XPress expansion, which enhances connectivity to Gulf Coast LNG export markets.
Returns on capital investments continue improving, with year-to-date sanctioned projects averaging approximately 12% unlevered after-tax internal rates of return, up from 11% in 2024 and 8.5% several years ago.
Bruce Power nuclear generation achieved 98% availability in the quarter, benefiting from an annual price adjustment that lifted realized power prices to $110 per megawatt-hour.
TC Energy expects Bruce Power equity income to nearly double by 2035 as investments through the major component replacement program enhance reliability while supporting Ontario’s growing electricity demand, which provincial forecasts project will increase 75% by 2050.
