With the passing of the federal Budget, we can expect to enjoy thousands of dollars of annual tax savings, by lowering taxes
paid, and increasing tax credits and government benefits. Retirement income splitting allows you and your spouse (including
common law) to lower your total taxes throughout retirement.
Beginning this year, any Canadian resident with eligible income can allocate up to 50% of that income to their spouse. If you
are under 65 years of age, eligible income includes employer pension income, as well as some death benefits. If you are 65
years of age or older, eligible income also includes lifetime income paid from Registered Retirement Income Fund (RRIF),
Life Income Fund (LIF) and Locked in Retirement Income Fund (LRIF), and Deferred Profit Sharing Plan (DPSP).
On receiving benefits from an employer pension, you can split up to 50% of that pension with your spouse, regardless of age.
In doing so, each of you can then use the annual tax credit on up to $2000 eligible pension income. Sources of retirement
income not eligible for splitting include Old Age Security, Guaranteed Income Supplements, income from Retirement
Compensation Arrangements, and RRSP withdrawals (non-annuity).
Each of you will need to make an election in your tax return specifying what portion of your income is to be deducted from
the person who actually received the income, and request that it be included in the other spouse’s income. This direction and
the amount can be changed annually. The greater the difference between your incomes, and marginal tax rates, the more
significant your tax savings will be.
Once you and your spouse are both 60 years old, or older, you can also apply to share up to 50% of the Canada Pension
Plan benefits you earned while you lived together. To do this, you must contact the Human Resource department of the
By leveling your retirement income between you, pension splitting can increase your use of age credits, providing you are
65 years old. Don’t forget, however, there is claw back that can reduce the base for the age credit. Couples who split incomes
may also avoid or reduce the Old Age Security (OAS) claw back as well. Spousal Registered Retirement Savings Plans
(Spousal RRSPs) can also help you balance your income levels.
Spousal RRSPs allow you to make a RSP contribution to your spouse’s RSP, then deduct that contribution from your own
income. Providing your spouse waits three tax years before withdrawing funds from a Spousal RSP, they can then include the
amount withdrawn as their own income. Under the new retirement income splitting rules, only 50% of income can be split,
and then only when the higher income spouse reaches the age of 65. Spousal RSPs allow
you to shift income at any age.
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can affect taxes paid. Consult with your accountant or
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