Is Pension Income Splitting Right For You?
Pension income splitting is particularly beneficial when one spouse earns a much larger retirement income than the other spouse. Simply put, two retirement incomes that are similar pay less combined tax than if one spouse earns (and pays taxes on) a higher income.
If eligible, you can allocate up to half of your pension to your married or common-law spouse when you complete your annual tax return. For example, if your pension is $50,000 and your married or common-law spouse has no income, you can allocate $14,000 to him or her. This would result in an approximate tax savings of $1,987. Finding the optimal amount to split may take some good old-fashioned number crunching, but the financial rewards may be significant.
We recommend you consult a tax accountant to determine if pension income splitting is right for you – it's a complex decision that depends on your personal financial situation. You can also get more details from the Canada Revenue Agency.
It's also important to remember that government legislation does not allow us to deduct less tax from pensioners who also intend to split their incomes. We're required to deduct tax based on 100% of your monthly pension payment.