Ask an accountant: Pension income splitting

Francesca Giroux, CGA
For the Lakeside Leader

Individuals who receive pension income can reduce their taxable income by electing to split their pension income with their spouse or common-law partner.

In certain circumstances it is desirable to split pension income to achieve tax savings, as in the case when one spouse is in a higher tax bracket than the other spouse. By splitting the pension income the couple could tax advantage of the lower tax rate of one of the spouses and the potential extra non-refundable pension tax credit.

In order to qualify to split your pension income, you (the Pensioner) and your spouse or common-law partner (the Pension Transferee) must meet the following conditions: you must be married or in a common-law partnership with each other in the year and are not, because of a breakdown in your relationship living separate and apart from each other at the end of the tax year and for a period of 90 days or more commencing in the year; you must both be resident in Canada on December 31 of the year; and you received pension income in the year that qualifies for the pension income amount. The age of your spouse or common-law partner does not impact whether or not you can split your pension income with them.

In order to split pension income you and your spouse or common-law partner must make a joint election on Form T1031 Joint Election to Split Pension Income. The form must be completed, signed and attached to both tax returns if paper filing.

If your return is e-filed keep the form with your other slips should the Canada Revenue Agency (CRA) request to see it. The information on you and your spouse’s forms should be the same, and you can only allocate up to 50% of your eligible pension income to your spouse or common-law partner.

Only one joint election can be made per tax year so if both of you receive eligible pension income in the year, you have to decide which individual (if any) will split their pension income with the other. If you require assistance determining the optimal pension income split for you and your spouse please contact your local CPA.

Please e-mail your questions to [email protected]

Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.

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