How does pension income splitting work?
By Krystian Urbanski, CIM, CIWM, FCSI, PFP · Chief Retirement Strategist, RetirementIQUpdated · 3 min read
Pension income splitting lets you allocate up to 50% of your eligible pension income to your spouse or common-law partner on your tax returns, using Form T1032. Workplace pension income qualifies at any age; RRIF and annuity income qualifies from 65. CPP and OAS cannot be split this way, but CPP can be shared.
What qualifies
- At any age: the taxable part of life annuity payments from a registered pension plan (a workplace defined benefit pension, for example).
- From 65: RRIF and LIF payments, registered annuity payments and RRSP annuity payments as well.
- Not eligible: CPP, QPP and OAS. RRSP lump-sum withdrawals do not qualify either.
The age that matters is that of the person who receives the pension income, not the spouse receiving the allocation.
How to elect
Both spouses complete Form T1032, Joint Election to Split Pension Income, with matching amounts, and file it with their returns by the filing deadline. You choose the amount each year, from 0% to 50%, so you can fine-tune it to equalize incomes. Tax software usually optimizes it for you.
Why it matters
- It can lower the couple’s total tax by moving income to a lower bracket.
- It can reduce or eliminate the OAS clawback for the higher-income spouse.
- It can let both spouses claim the pension income credit on up to $2,000 each.
CPP sharing is different
CPP is not split on the T1032. Instead, spouses who are both at least 60, with each spouse who contributed already receiving their CPP, can apply to Service Canada to share their CPP retirement pensions, based on the years they lived together. It changes the actual payments, and it can also lower tax.
George, 67, has a $60,000 pension and his wife Anne, 66, has $15,000 of income. By allocating $22,500 of George’s pension to Anne, each reports $37,500 plus their CPP and OAS, likely keeping both in the lowest federal tax bracket. Anne can also claim the pension income credit on $2,000 of the allocated pension.
What to do next
- List each spouse’s pension, RRIF, CPP and OAS income.
- Check whether either spouse is under 65 (RRIF income does not qualify until 65).
- File Form T1032 with both returns.
- Consider converting part of an RRSP to a RRIF at 65 to create splittable income.
Free tools that help
Related questions
Can I split RRSP withdrawals with my spouse?
Not lump-sum RRSP withdrawals. Convert RRSP savings to a RRIF or annuity; from 65 those payments are eligible for splitting.
Do we have to split 50%?
No. You can allocate any amount up to 50%, and choose a different amount each year to minimize your combined tax.
Can common-law partners split pension income?
Yes. Spouses and common-law partners can both use pension income splitting, as long as they were living together at the end of the year.
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