Splitting Pensions, Annuities,
RRSP’s and RRIF’s etc with a
Spouse
1) Can spouses split their pension income between
them?
As from the beginning of 2007 pensioners can
deduct any amount up to 50% of their pension
income and their spouses can add it their income
2) Can one of the spouses NOT be a resident of
Canada?
No. Both have to be residents of Canada on 31st of
December.
3) Do both spouses have to agree on the split?
Yes, and form T1032 has to be signed by both and
be attached to both their tax returns.
4) What if the spouses were separated at year-end?
If the separation was the result of marriage
breakdown and has lasted 90 days and commenced
during the year, the pension cannot be split
between the spouses.
5) What if the spouses were not married or living
common law for the whole year?
The amount, which can be split, will be prorated
based on the number of months they were living
together.
6) If taxes were deducted from the pension and
part of the pension was allocated to the spouse
will part of the taxes deducted also be transferred
to the spouse?
Yes.
7) Can spouses split Old Age Security (OAS) and
Canada Pension Plan (CPP) in this manner?
No!
8) What pensions are eligible for splitting rules?
All pensions received by individuals who are
entitled to claim the $2,000 non-refundable credit.
(Pension income amount)
9) What pensions are eligible for the $2,000
pension income amount (PIA)?
If the pensioner or spouse is under 65:
Life annuity from a superannuation pension fund
or plan will qualify.
If the pensioner or spouse is older than 65:
Life annuity from a superannuation pension fund
or plan, Registered Retirement Income Fund
(RRIF) (including life income fund) payments
and Registered Retirement Savings Plan (RRSP)
annuity payments qualify.
10) If the spouse is under 65 and the pension
transferred from the pensioner is from a RRIF,
RRSP or a Deferred Profit Sharing Plan will the
spouse be able to claim the $2,000 PIA?
No!
11) If the spouse is over 65, but the pensioner is
under 65, and the pension transferred is from a
RRIF, RRSP or a DPDP will the spouse qualify
for $2,000 PIA?
No, the pension does not qualify for splitting
altogether. It will qualify if the pension was from a
life annuity from a superannuation, a pension fund
or plan payments.
12) Should the pension split be done in all cases?
In the following cases the pension split is usually
advisable:
If the pensioner is in a higher tax bracket,
If the marginal rate of the pensioner is about
the same as the spouse and the spouse can
use the $2,000 non-refundable credit,
the pensioner avoids the Old Age claw back,
the pensioner avoids the OAS claw back .
Of course the final test is to actually calculate
the total of the taxes of both spouses before and
after the split and decide whether the split
renders any tax savings.
Note:
This newsletter cannot replace professional
advice. The reader is invited to contact the
writer to discuss the contents of the newsletter.
Readers are advised to seek professional advice
before acting on the material in this newsletter.
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