Who Can Use Pension Splitting?
You may be eligible for pension splitting if:
You are receiving eligible pension income
You have a spouse or common-law partner at the end of the tax year
Both spouses are residents of Canada
You file a joint election with your spouse using Form T1032
What Counts as Eligible Pension Income?
Eligible pension income includes:
For individuals aged 65 and older:
Payments from registered pension plans (RPPs)
Annuity payments from a Registered Retirement Savings Plan (RRSP) or Deferred Profit-Sharing Plan (DPSP)
Income from a Registered Retirement Income Fund (RRIF)
Certain income from foreign pensions
For individuals under 65:
Payments from registered pension plans (RPPs)
Other types of income if received due to the death of a spouse
How Does Pension Splitting Work?
Determine the Amount to Split: You can allocate up to 50% of eligible pension income to your spouse.
File Form T1032: Both you and your spouse must complete and sign the T1032 Joint Election for Pension Splitting form when filing your tax returns.
Adjust Tax Returns: The transferred income is deducted from your income and added to your spouse’s, potentially lowering your combined tax liability.
Why Use Pension Splitting?
Tax Savings: Reduces the household’s overall tax burden by shifting income to a spouse in a lower tax bracket.
Maximize Credits: Helps you and your spouse qualify for income-tested benefits or tax credits by lowering individual net income.
Fair Income Distribution: Balances taxable income between spouses.
Important Notes
Pension splitting does not involve an actual transfer of funds—only the income allocation for tax purposes changes.
Pension income that is split may affect eligibility for benefits like the Old Age Security (OAS), as it alters net income.
You must file a joint election each year to use pension splitting.
Why This Matters
Pension splitting is a valuable tool for retirees to reduce taxes and optimize their financial situation.