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Spring ’15 Pension Income Splitting

Dave's Investment Insights Newsletter – Spring 2015

Written by Dave Lee
March 1, 2015

The Federal Government allows spouses and common-law partners to tax up to 50% of a taxpayer’s eligible pension income in the hands of their spouse.

The primary advantage of income splitting is to reduce a couple’s overall tax rates by shifting some income from a pensioner in a medium or high tax bracket to a spouse with a lower tax rate.

For those over the age of 65, this includes company pension plan payments, Registered Retirement Income Fund (RRIF) payments, and the taxable portion of foreign pensions. The lower income spouse does not need to be over 65.

For pensioners under age 65, it is generally just company pension plan payments that qualify for income splitting. The amount being split is deducted by the pensioner on their tax return and reported as income on the tax return of the transferee.

CPP payments can be split between spouses and common-law partners but the process is different. To qualify, both individuals must be at least 60 years old. This split is done via an application form submitted through Service Canada.

Old Age Security (OAS) payments cannot be split. However, most spouses receive the same amount from OAS, and using the income splitting opportunities above can make it easier to reduce or avoid the OAS claw-back. Currently OAS claw-back begins when your income exceeds $72,809. For each dollar you earn above this level, your OAS is reduced by 15 cents, and if you earn over $117,909 you lose your entire OAS payment.

Download the Complete Spring 2015 Investment Insights Newsletter