Take advantage of all income-splitting and pension-sharing options

Take advantage of all income-splitting and pension-sharing options

Taxpayers can apply to share their Canada Pension Plan (CPP) retirement income with their partners if both are 60 years old or over. While pension sharing is not considered the same as pension income splitting, it does the same thing — putting more income in the hands of the lower-earning partner. The post-retirement CPP benefit, can’t be used for pension sharing.

People 65 years old and over can split several kinds of pension income.  Life annuity payments from a company pension plan, RRIF payments and annuity payments from an RRSP or deferred profit sharing plan to name a few. For people under the age of 65, this can also be used after the spouse has died.

Income splitting can save may individuals thousands of dollars in tax.  Income is moved from the person who is in the higher tax bracket to someone in a lower bracket. Sometimes, splitting can help in bringing down the cost or taking away completely any Old Age Security payments or the age credit for the higher-earning spouse.

Pension income splitting can also let both partners claim the $2,000 pension income tax credit.  Beginning in the 2014 tax year, couples who have one or more children under 18 can move up to $50,000 of taxable income to their lower-earning partner and claim a non-refundable tax credit of up to $2,000.  Keep in mind; if you’re going to claim this credit, you cannot also split pension income with your partner.

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