Congratulations, you have reached a milestone and have finally retired. You are receiving a pension from your former employer and would like to split it this with your spouse under the pension splitting rules.
What is Pension Splitting?
If you receive pension income eligible for pension income tax credit, you can split up to 50% of this pension income with your spouse or common law partner, provided the following conditions are met:
- You were not living apart due to a martial breakdown,
- Both of you were residents of Canada on December 31st,
- You receive income eligible for the pension income tax credit.
How To Claim
The transfer of income from one spouse to the other must be agreed upon by both of you using form T1032 – Joint Election to Split Pension Income. This form must be filed with each of your tax returns.
Once you have agreed on the amount to split, you must report these amounts on your income tax returns.
If you are transferring pension income to your spouse, you must first claim all of your pension income on your income tax return. You will then claim a deduction for the amount allocated to your spouse on line 210 of your tax return. Your spouse will claim the same amount as income on line 116 of their return.
Watch Out For
Allocating income to your spouse may trigger other, unanticipated surprises. allocating income to your spouse may impact other credits and programs including:
- The spousal credit
- OAS & GIC clawbacks
If you are going to split pension income, make sure that you consider any other tax benefits that may be reduced.
Professional Help is Available?
We can help you keep more of your pension inome and reduce your tax bill by employing optimal pension and other income splitting strategies.
Call us at (289) 288-1206 or email us to arrange an appointment to have us review your tax situation and look for opportunities to reduce your family tax bill.