Congratulations, you have reached a milestone and have finally retired. You are receiving a pension from your former employer and would like to split it this with your spouse under the pension splitting rules. But how?
What is Pension Splitting?
If you receive pension income eligible for pension income tax credit, you can split up to 50% of this pension income with your spouse or common law partner, provided the following conditions are met:
- You were not living apart due to a martial breakdown,
- Both of you were residents of Canada on December 31st,
- You receive income eligible for the pension income tax credit.
How To Claim
The transfer of income from one spouse to the other must be agreed upon by both of you using form T1032 – Joint Election to Split Pension Income. This form must be filed with each of your tax returns.
Once you have agreed on the amount to split, you must report these amounts on your income tax returns. If you are transferring pension income to your spouse, you must first claim all of your pension income on your income tax return. You will then claim a deduction for the amount allocated to your spouse on line 210 of your tax return. Your spouse will claim the same amount as income on line 116 of their return.
Watch Out For
Be aware that pension income added to your spouses’ taxes may affect their government income security payments such as OAS or GIS. Pension splitting can also affect other tax credits such as the age amount. If you are going to split pension income, make sure that you consider any other tax benefits that may be reduced.
More Help?
The CRA has some good information on this topic here.
Related Articles
- Pension Income Splitting For Canadians
- What Is Eligible Pension Income?
- What is Income Splitting?
- Canadian Income Splitting Guide
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{ 17 comments… read them below or add one }
I am presently getting a pension income from my former employer, I realize that I can split this with my spouse which in effect reduces the taxes on that income. If I get a part time job while collecting my pension, can I still split the pension portion with my spouse or is it only allowed for the months I was not working?
@John: As long as you are receiving income that is eligible for the pension income tax credit, you can continue to split that income with your spouse.
I just retired and have a pension of $50,000…my wife works and makes $50,000….is there any benefit to income splitting. Is there a certain age that you need to be before you can income split
@Wayne: The benefit of income splitting is that the higher income earner splits part of their income with the lower income earner. If you both make the same amount already, there is no benefit to splitting income.
If, at some point, you are making different amounts, you can split income that is eligible for the pension income tax credit. If you are over the age of 65, this includes superannuation pension income, RRIF income, and annuity payments from an RRSP.
1st question? Recently retired my spose still works she makes substantualy less.
Mine is 50k pension hers is 30k working can I use income splitting with her even though she is still employed.
2nd Question? what year did income splitting start and could I go back and to what tax year ? thanks
Hello:
As long as your pension income qualifies for the pension income tax credit, you can split your pension with your spouse regardless of her age.
Pension splitting was announced in 2007. You can file an amended return with the CRA.
2009 was th first year my wife and i split my income.can i go back the other two years and how do i go about it.H&RBLOCK has been doing my taxes for the past five years but diden;t tell me about it until last year
You can file an amendment to the prior two years returns.
I will be retiring next year at age 55 and will be on a company pension of approx $50K. My wife will be 51 and she is on a disability pension of $10K. Can I split my pension income with her?
Hello Rick S:
As long as your pension is from a defined benefit pension plan you can split it with her regardless of your age. If you are over 65 you can split the minimum RRIF payments with her as well.
Both parties retirted, ages 62 and 64 (spouse older) Presently splitting my work pension. I have RSP,s and wish to withdraw a lump sum in tax year 2011. My spouse turns 65 in 03/2011 and my understanding once she is 65, I am able to split the amount of RSP,s withdrawn with my spouse after she turns 65 ? Is my asummption correst
Hello Tom,
Splitting pension income depends on your situation and age. If you are age 65 and receiving eligible pension income (see the article above), then you can split your pension income with your spouse regardless of her age.
I hope this helps.
My wife and I have not claimed pension split…We are having our penision split calculated for 2007, 2008 and 09…where does one pick up the amended tax form and 1032s to refile for these last three years
The CRA website has the forms. Here is the link for the T1 ADJ – http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/chngrtrn-eng.html
The T1032 is available here: http://www.cra-arc.gc.ca/E/pbg/tf/t1032/README.html
I certainly think the pension income splitting reform has been one of the very best financial measures introduced by the present government. My wife and I have used it since its inception and have realized significant tax savings due to our pension and RRIF income disparity. However, I have one complaint and it’s with the Canada Revenue Agency for not providing any formula to help taxpayers with the complex task of optimizing the pension income splitting. While such an optimizer is indeed available using Ufile and other online tax preparation tools, the CRC leaves it up to individuals who do their own taxes to figure this out on their own and IMHO that’s a travesty.
While I do understand your frustration but the responsibility of government lies with establishing the laws and enforcing them. If the government were to provide tax planning tools, would you also suggest they do your taxes for you?
Of course not. But until now I’ve always been able to construct a spreadsheet capable of calculating our taxes extremely efficiently and accurately. But with the complications brought about by the Old Age Pension clawback threshhold, etc., it’s extremely difficult to figure out where to split pension income. I know a lot of seniors who assume a 50%-50% division is best but, in many cases that’s not the optimal point to pay the minimum in taxes. Frankly, I’ve now given up some of my tax preparation independence and let Ufile do it for me. My only point is that the CRC could easily provide some guidance on pension income splitting strategies – but they don’t bother.