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Pension income splitting could mean tax savings

By Contributor
March 27th, 2015

 There’s a federal tax provision that seniors should know about because it could mean tax savings. 

If you are eligible, you can ‘split’ up to 50% of eligible pension income with a spouse or common-law partner for tax purposes in order to create overall tax savings for you and your partner.  
It’s called pension income splitting and here’s an example of how it works:

  • A Manitoba couple who are both over age 65 share $15,000 of Canada Pension Plan (CPP) benefits.  Each receives the maximum Old Age Security (OAS) benefit and one spouse has an annual registered pension of $50,000.  The registered pension recipient allocates $25,000 of their pension income to the other spouse creating a family tax savings through pension income splitting of $2,638.
  • To be eligible for pension income splitting, the income must qualify for the federal pension income credit.
  • For those age 65 and over, income eligible for the Pension Income Tax Credit includes periodic payments from a pension plan (Canadian or foreign), investments held in a Registered Retirement Income Fund (RRIF) or Life Income Fund (LIF) payments, annuity payments under a Registered Retirement Savings Plan (RRSP) or Deferred Profit Sharing Plan (DPSP), and the interest portion of payments under a non-registered annuity.
  • For those who have not reached age 65, eligible income for this credit includes periodic payments from a (Canadian of foreign) pension plan, RRSP/RRIF and annuity payments made to a spouse as a consequence of the death of the owner of the account.
  • OAS, CPP/QPP (Quebec Pension Plan) payments and Guaranteed Income Security (GIS) payments do not qualify.
  • Splitting pension income can result in a reduction in the OAS clawback for the higher-earning spouse.  The 2014 OAS clawback applies to net income between $71,592 and $116,103.
  • There is no actual payment of pension income from one spouse to another – the allocation is simply shown on the tax form.
  • The allocation can be changed each year.
  • The allocation can affect income-tested credits such as the age credit, the spousal credit and the medical expense credit.
  • A couple who has not used income splitting in a prior year can apply for pension income splitting for the previous three years.
  • Spouses are jointly responsible for total taxes owing.

Be sure to take full advantage of pension income splitting and all other tax-reduction strategies by talking to your professional advisor today.
This column is sponsor by Roger Higgins, a BA, CFP Division Director for Investors Group in the Kootenays. For all your financial planning needs, contact Roger at 250-352-7777 of email at

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