Election To Split Pension Income With Your Spouse or Common Law Partner
Commencing with the 2007 tax year, individuals who are resident in Canada at the end of the year (or at the time of death) and who are receiving eligible pension income may elect to allocate up to 50% of this income to their spouse or partner (who must also be resident in Canada). Eligible pension income is generally the total of the following amounts:
- The taxable part of annuity payments from a superannuation or pension fund or plan;
- If received as a result of the death of a spouse or common-law partner, or if the pensioner is 65 or older at the year end;
- Annuity and RRIF (and Life Income Fund) payments; and
- Registered Retirement Savings Plan annuity payments.
An easy way to remember what type of pension income qualifies, is to remember that if the pension income is eligible for the $2000 pension credit, it’s eligible to be split.
NOTE: Income from Old Age Security, Canada and Quebec Pension Plans and SERPs (Senior Executive Retirement Plans also known as top up plans) do not qualify.
Tax software would help taxpayers achieve the most tax effective treatment between spouses. Note that minimizing taxes payable on a combined basis may actually increase the taxes payable by one spouse while reducing the taxes payable by the other!
The pension transfer between spouses can affect a number of different areas of the tax return. These may include:
- Federal tax brackets
- Old Age Security clawback
- The age amount (credit)
- The spousal amount (credit)
- The pension income amount (credit)
- Amounts transferrable between spouses (e.g. disability, tuition, etc.)
- The level of installments payable
- The medical expense threshold
The ability to split pension income is a far more complex issue than just moving income from a higher income spouse to a lower income spouse. For this reason, both spouses electing to split pension income must sign Form T1032 and keep it on file in the event that CRA audits the election.
This election must be filed by April 30th for individual taxpayers and by June 15th for self employed taxpayers. If, for any reason, you are late in filing, pension splitting will NOT be allowed.
