Pension income splitting

If you have a spouse or common-law partner, the two of you can jointly elect to have up to half of one person’s eligible pension income reported on the other person’s return. When one of you has a much higher income than the other, this can lower the tax you pay as a couple.

How it works

The split happens on your tax returns. The spouse who receives the pension (the transferring spouse) deducts the elected amount, and the other spouse (the receiving spouse) reports the same amount as income. Income tax already withheld from that pension moves with it, in the same proportion: if you allocate 50% of the pension, 50% of the tax withheld on it goes on your spouse’s return too.

Each of you is taxed separately, at rates that rise with income (see the income tax brackets), so income moved from the higher-income spouse to the lower-income spouse may be taxed at a lower rate.

What income can be split

Eligible pension income is generally the same income that qualifies for the pension income amount:

• At any age: the taxable part of life annuity payments from a pension plan, such as a workplace registered pension.
• At 65 or older (at the end of the year), or if you received it because your spouse or partner died: payments from a registered retirement income fund (RRIF), including a life income fund, RRSP annuity payments and other annuity payments. Some retirement compensation arrangement amounts also qualify at 65 or older.

These can’t be split:

• Old Age Security
• Canada Pension Plan and Quebec Pension Plan benefits
• foreign pensions that are tax-free in Canada because of a tax treaty, and US individual retirement account (IRA) income
• RRIF amounts transferred to an RRSP, another RRIF or an annuity

Variable benefits from the money purchase part of a registered pension plan and payments from a pooled registered pension plan only count if the transferring spouse is 65 or older at year-end, or if they’re received because a spouse or partner died.

Who can split

You can make the election if all of these apply:

• You weren’t living apart because of a breakdown in your relationship for 90 days or more, including December 31. Living apart for medical, educational or business reasons doesn’t stop you.
• You were both residents of Canada on December 31 (or on the date of death).
• The transferring spouse received pension income that qualifies for the pension income amount.

The receiving spouse can be any age.

How to make the election

Both of you fill out and sign Form T1032, Joint Election to Split Pension Income, with the same information, and file it by the filing due date. If you file on paper, attach it to both returns. If you file online, keep it in case the CRA asks for it.

• You can allocate up to 50% of eligible pension income.
• Only one joint election is allowed per year. If you both have eligible pension income, you decide which of you is the transferring spouse.
• You can choose a different percentage each year.
• In some cases, the CRA may accept a late or amended election, or a revocation, if you ask within three calendar years after the filing due date and you both agree.

The pension income amount for both of you

Splitting can also let both spouses claim the federal pension income amount, worth up to $2,000 of eligible pension income each. The transferring spouse claims it on what they kept. The receiving spouse can claim it on the allocated income only if that income qualifies for them, which can depend on their own age. Step 4 of Form T1032 works this out. Provinces and territories have their own pension amounts, listed on our personal credits table.

Watch the knock-on effects

Splitting lowers the transferring spouse’s net income and raises the receiving spouse’s. Benefits and credits based on your combined family income don’t change. Anything based on one person’s net income can change, including the age amount, the spouse or common-law partner amount and the Old Age Security repayment (clawback). Run the numbers at a few percentages before you settle on one: you can put each spouse’s income through our income tax calculator to compare.

CPP sharing is a different thing

CPP benefits can’t be split on your tax return, but you can apply to Service Canada to share your CPP retirement pensions if you live with your spouse or common-law partner and one of you receives (or has applied for) a retirement pension. The share depends on how many months you lived together while either of you could contribute. It starts once approved and can’t be backdated. If you get a QPP pension, Retraite Québec has its own sharing rules.

In Quebec

Quebec’s return has a stricter rule. You can transfer retirement income to your spouse on your Quebec return (Schedule Q) only if you were 65 or older at the end of the year, you had a spouse on December 31 and you both agree. If you’re under 65, you can still split a workplace pension on your federal return, but not on your Quebec return.