The most significant change for retirees will be income splitting. Introduced in 2006, income splitting will impact this year's tax return.

The new rules allow retirees to split up to half of their eligible income with a spouse or common-law partner. Where there is one spouse with very little income, the tax savings will be substantial. For higher-income taxpayers, it could also result in a reduced clawback of Old Age Security benefits and the age amount.

The types of income that may be split are those that qualify for the pension income amount. This includes most periodic pension and superannuation payments. If you are 65 or older at the end of the year, it also includes annuities and payments from a Registered Retirement Income Fund. Old Age Security, Canada Pension Plan or provincial benefits are not eligible.

However, there are rules that could allow you to split Canada Pension Plan retirement benefits, although the amount you can split depends on how long you were living together during your contributory periods. If you think you could qualify, you have to apply to Human Resources and Social Development Canada. It cannot be done when you are preparing your tax return.

The last federal budget also brought changes to Registered Retirement Saving Plans (RRSPs). The age limit for being eligible to hold RRSPs has been increased to 71 from 69. Now retirees can wait another two years before switching to Registered Retirement Income Funds (RRIFs). If you turned 70 this year, you may want to check the guidelines for holding RRSPs. The government has made provisions for retirees who are between 69 and 71 in 2007.

Retirees are eligible for a number of deductions and credits that help reduce tax payable. If your spouse is unable to completely offset their age amount, pension income and disability amount against tax payable, they may transfer the unused portion to your return.

If you live with your children, they may be able to claim a caregiver amount for you if your income is less than $13,726. Medical expenses can also be eligible for a credit. It is important to keep receipts and records of any medical expenses even if some of it was covered by a private or government plan. If you had to drive more than 40 kilometres to receive medical treatment, you may also be able to claim transportation expenses.

Charitable donations are another popular tax credit, with the first $200 being worth a 15.5-per-cent credit and over $200 worth 29 per cent. Spouses can combine contributions to help maximize their returns. The government also introduced a new program in 2006 that allows Canadians to donate stock to charities without having to pay tax on the capital gains. It might be worth reviewing your donations to see if it is more tax advantageous to donate stock rather than cash.

Cleo Hamel is a senior tax analyst with H&R Block. She can be reached with questions at cleo.hamel@hrblock.ca.