Reduce Your Taxes by Splitting Pension Income
Pensioners are able to split eligible pension income and splitting pension income between the higher and lower income spouse just might save your family some tax dollars. This is an important consideration for any retirement plan.
If you’re 65 or over, your eligible pension income includes lifetime annuity payments under corporate pension plans (RPPs), deferred profit sharing plans (DPSPs), RRSPs, and RRIFs.
If you’re under 65, eligible pension income includes lifetime payments under an RPP and certain other survivor benefits.
Old Age Security and Canada Pension Plan payments are not considered eligible pension amounts.
There are a number of things to consider, however, when electing to split pension income.
Pension Income Credit Available in Some Circumstances
Pension income splitting may also allow the recipient, the lower-income spouse, to claim the pension income credit if he or she wasn’t already receiving eligible pension income.
The federal credit is the lesser of $2,000 or 15% of the eligible pension income allocated to the recipient spouse.
Splitting pension income between spouses reduces the net income of the pension transferor while it increases the income of the spouse transferee.
For that reason, pension splitting will affect tax credits and benefits that are calculated using an individual’s net income. These include the age amount, the spouse or common-law partner amount, and the repayment of old age security benefits.
While determining the optimal family scenario can be overwhelming, FBC offers tax services to ensure that your tax situation is optimized.
Our tax software engine, TaxGuard™, performs calculations to find the best split of eligible pension income and produce the least tax payable for your family and maximize your tax benefits.