All the Numbers

Pension income splitting

From the All the Numbers wiki · Tax

Canadian tax is charged per person, so a couple with one high pension income and one low one pays more than a couple with the same total split evenly; see taxes are per person. Pension income splitting is the one common tool that moves income between spouses on the return. Both file a joint election, the higher-income pensioner transfers part of their eligible pension income, and the other spouse reports it.

The rules

  • Up to 50% of the transferring spouse's eligible pension income can be allocated.[1]
  • At 65 or older at year end, eligible income is a workplace pension life annuity, RRIF or LIF payments, RRSP annuity payments and other annuities.[2]
  • Under 65, only a registered pension plan life annuity (or amounts received on a spouse's death) is eligible.
  • CPP, OAS and GIS are never eligible.[2] CPP can instead be shared through a separate application to Service Canada; see the CPP retirement pension.
  • Both spouses must be resident in Canada at year end and not living apart for 90 or more days because of a breakdown.[3]
  • Tax withheld on the transferred income is allocated in the same proportion.
  • Each spouse can claim the pension income amount on what they report, if it qualifies: the lesser of $2,000 federally and the eligible pension income, and $1,796 for Ontario.[4][5]

Splitting can also reduce the OAS recovery tax for the higher earner, because the recovery test is on individual net income. Moving too much can raise the recipient's own tax or recovery tax.

What the engine does

  • Accepts a joint election in a plan, with a fraction of at most one half, applied in every year both spouses are assessed.
  • For a couple, All the Numbers splits by default: each year the spouse with the higher net income moves enough eligible pension income to make the two net incomes equal, but never more than half of it.[6] Either of you can be the one who moves it, and that can change from year to year. This is our convention, not a search for the lowest tax: the same rule an accountant usually starts from on the T1032.
  • Deducts the transferred share from the transferor and adds it to the recipient, moves the withholding on it with the income, and gives the recipient the pension amount on it when they are 65 or older, or when an RPP life annuity is attested.
  • Allows one election per person; chains and reciprocal elections are refused.

What it deliberately does not

  • It does not search for the share with the lowest tax. Evening out the incomes is close for most couples, but the best share can differ, for example when the recipient would lose a credit. There is no proration for a part-year partnership.
  • A workplace pension you ticked to split always moves half, every year.
  • Transfers of unused age, pension or disability amounts between spouses are not modelled.
  • Spousal RRSPs, which move income before retirement, are not modelled.

See also

  • Age, spouse and caregiver credits · Some credits depend on who you are or who you support. The age amount starts at 65 and shrinks with income; the spouse amount is the basic personal amount less your partner's income. All the Numbers applies the age amount, and the spouse amount for a couple; not the caregiver credits.
  • RRIFs and the wind-up at 71 · An RRSP must become a RRIF by the end of the year you turn 71, after which a prescribed minimum comes out and is taxed every year. Give a birth year and the plan models it; leave it blank and a plan running past 71 looks better than it is.
  • Spousal RRSPs · A spousal RRSP is held by one partner and funded by the other, who takes the deduction. Withdrawals within three years of a contribution are taxed to the contributor. All the Numbers does not offer one, so each person's RRSP is their own.
  • Taxes are per person · Canada has no joint return, so each of you is taxed on your own income with your own brackets and credits. The routes that do move income between partners — pension splitting, spousal RRSPs, prescribed-rate loans — are not modelled, so a couple's real bill may be lower than this.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.
  • The OAS recovery tax · Years where net income clears the threshold repay 15% of the excess out of Old Age Security. The projection adds it to the year's return and pays it with the April balance; Service Canada takes it from the OAS payments from the next July instead, so only the timing differs.
  • Workplace pensions · A defined-benefit pension from an employer pays a set amount each month for life, sometimes with a bridge benefit that stops at 65. Enter the yearly pension you expect when it starts, with the years you will still work, under each person's workplace pension; the plan does not add one you have not entered.

References

  1. ↑CRA — Pension income splitting; ITA s.60.03 "split-pension amount" · Pension income splitting: the most of the transferring spouse's eligible pension income that may be allocated by joint election (T1032); withholding is allocated in the same proportion · 50% · effective 2007-01-01
  2. ↑CRA — Pension income splitting (eligibility); ITA 60.03, 118(7) · Eligible pension income for splitting: transferor 65+ at year end — RPP life annuity, RRIF/LIF payments, RRSP annuity, other annuities; under 65 — RPP life annuity only (or amounts received on a spouse's death). Never CPP/QPP, OAS, GIS. Spouses resident in Canada at year end and not living apart 90+ days from breakdown · See the source · effective 2007-01-01
  3. ↑CRA — Marital status · Separated means living apart because of a breakdown in the relationship for at least 90 days; the status is effective from the first day apart · 90 days · effective 2001-01-01
  4. ↑CRA — TD1 2026 Personal Tax Credits Return, line 4; ITA 118(3), (7) · Federal pension income amount (line 31400): lesser of this and eligible pension income (RRIF, RPP, RRSP annuity payments at 65+; not CPP, OAS, GIS or lump-sum RRSP withdrawals); not indexed · $2,000 · effective 2006-01-01
  5. ↑CRA — TD1ON 2026 Ontario Personal Tax Credits Return, line 3 · Ontario pension income amount (ON428 line 58360): lesser of this and eligible pension income; indexed · $1,796 · effective 2026-01-01
  6. ↑Our convention, under ITA 60.03 (CRA — Pension income splitting: up to 50% of eligible pension income, one joint election a year) · A couple splits eligible pension income every year (a T1032 election each year) by default: the spouse with the higher net income before splitting moves the amount that makes the two net incomes equal, up to half of their eligible pension income (the workplace pension at any age, RRIF income from 65); either spouse may be the one who moves it, year by year. Not a search for the lowest tax; reported on the run · effective 2026-10-28