The 2007 tax year was a big win for seniors when the Government introduced pension income splitting which allows lowering income taxes between spouses.
Prior to these new rules, only Canada Pension Plan could be split but the calculation was done by the Government and was not straight forward.
How Pension Splitting Works
In order to split your pension income, you have to be receiving income that is eligible for the pension income tax credit. Generally speaking this is payments from a defined benefit pension plan, or RRIF payments if you are age 65 of older.
The person receiving the pension income need only qualify. For example, say you are over age 65 and receiving RRIF income and your spouse is under age 65. You can split your RRIF income and allocate some to your spouse who is under 65.
Both spouses have to agree to split the income and make the proper election to do so. You bot make an election by filing the CRA’s form T1032 – Joint Election to Split Pension Income with their tax returns.
You can allocate up to 50% of your eligible pension income to your spouse or common law partner.
What To Watch out For
If you are both in the same income tax bracket, there is no benefit to splitting pension income unless the transfer creates or increases the pension tax credit for the spouse receiving the pension income.
If you allocate pension income to your spouse and they have none, then they may be able to claim the pension income tax credit.
Moving pension income from one spouse to another will affect and age credit, spousal credit, or other income testes tax credits you or your spouse receives.
Be aware that since pension splitting will affect both spouses income, that you should be aware of the impact to other benefits such as Old Age Security or the Guaranteed Income Supplement. These could be subject to increases or the OAS clawback.
Tools To Help Split Pension Income
TurboTax Canada has a Pension Income Splitting Optimizer available on their TurboTax Standard version TurboTax Premiereditions. The TurboTax pension splitting optimizer helps you divide pension income between spouses for your maximum refund.
Looking For Professional Help?
If you’re looking for advice or tax planning services, you can contact me directly through my professional tax practice.
Related Articles
- How To Split Pension Income
- What Is Eligible Pension Income?
- What is Income Splitting?
- Why Pension Splitting Does Not Kill Spousal RRSPs
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My wife receives only CPP and I split my pension income with her. She reports the split pension income on line 116. The pension credit of $2000 says it is eligible for income reported on line 115.
I claim the $2000 pension credit as I report income on line 115.
Does my wife also claim the $2000 pension credit?
Mike,
Yes, your wife can claim the pension income credit as well.
In 2010 tax year I made a contribution to a rrsp. I claimed less than the full amount of the contribution and have (B) unused contributions available for 2011.
I included the official tax receipt with my 2010 tax return.
I now wish to claim the balance (B) unused contributions available for 2011 on my 2011 tax return.
Do I have to send the official tax receipt again? Obviously as I have already sent the original I would only have a photocopy of my own portion of the receipt to send.
thx
Mike, you don’t have to include the tax receipt again. The CRA knows you have unused RRSP deductions to claim.
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