If you receive pension income that qualifies for the pension income tax credit, you can transfer up to 50% of it to your spouse or partner. Note that this is a notional transfer and therefore, no actual transfer of cash occurs. There is no maximum dollar amount.
How do I know if I'm eligible for pension splitting?
The principal residence exemption may reduce or eliminate your capital gain. For example, if the property was solely a principal residence, you do not have to pay tax on the capital gain every year that you owned it. However, if the property was not your principal residence at any time when you owned it, you may have to report all, or part, of the capital gain.
What do you need to do to get the principal residence exemption?
Different types of pension income may be eligible for splitting, depending on your age:
If you’re under 65: Annuity payments from a registered pension plan, certain payments received as a result of the death of your spouse or partner (e.g., a survivor pension annuity), amounts received from a retirement income security benefit (with respect to Canadian Forces veterans), subject to certain conditions.
If you’re 65 or older: The payments described above and annuity payments from a RRSP or a deferred profit-sharing plan, Registered Retirement Income Fund (RRIF) payments, and certain qualifying amounts distributed from a retirement compensation arrangement. Pension income for this purpose does not include OAS, CPP or QPP benefits, death benefits, retiring allowances, RRSP withdrawals (other than annuity payments), or payments out of a salary deferral arrangement or employee benefit plan.
A foreign pension may qualify for income splitting. However, neither the portion that’s tax exempt, due to a tax treaty with the foreign country, nor income from a US Individual Retirement Account (IRA) qualifies.
Take advantage of Pension Splitting
Splitting pension income is a big deduction for most Canadians. Pension splitting allows higher-income spouses to lower their payable tax by sharing up to 50% of eligible pension income with a spouse. Eligible pension income includes most employer sponsored pension, foreign pension income excluding CPP and OAS.
Why pay more tax when you can split your pension income? Partner up with your spouse and save!
Posted on 03 Mar 2022