Which type of pension is exempt from tax?

The veterans allowance pension is considered tax-exempt because it is a benefit provided by the government specifically designed to support veterans and their families. This type of pension recognizes the sacrifices made by individuals who served in the military and aims to provide financial assistance without imposing a tax burden.

In contrast, the other pension types have specific tax implications. The public service pension plan is typically subject to income tax, as it provides retirement income that is considered earned income. Similarly, funds withdrawn from a registered retirement income fund (RRIF) are also taxable as they are treated as regular income when received. Old Age Security (OAS), while it does provide a monthly pension to older Canadians, may also be subject to clawbacks based on the recipient's income level, making it not entirely exempt from taxes.

This classification highlights the unique financial support structure for veterans, emphasizing that their pensions serve a dual role of providing income while also offering relief from taxation, acknowledging their service.