In the ‘spirit’ of this Halloween, here are some tips and tricks for getting the most from this newish tax-saving treat.
- Pension income splitting is not new. CPP/QPP income splitting (or income sharing) has been allowed for several years.
- Certain types of pension income qualifies for income splitting prior to age 65, while other types of income will only qualify for splitting at 65 years of age.
- Pension income splitting could have an impact on several other tax calculations and credits including OAS benefits, medical expense credits, spousal credit, Age credit clawbacks, and quarterly tax instalments. For example, a spouse over age 65 can split income from a Registered Retirement Investment Fund (RRIF) with a spouse under 65 – BUT the spouse receiving the split will not be eligible for the pension income credit. In addition, while splitting income may help to reduce or eliminate your OAS and Age Credit clawbacks, your spouse may become subject to these clawbacks.
- You don't have to split pension income 50 – 50. You can split any amount up to 50% of your eligible pension income (income that qualifies for the pension income credit) and the split amounts can change each year based on your personal tax situation that year.
- Pension income splitting does not require the physical transfer of funds. To split income, you and your spouse/common-law partner must formally agree to do so by completing the Canada Revenue Agency form Joint Election to Split Income (Form T1032) and enter the elected split income amount on the appropriate line of your individual tax returns.
- If you make quarterly tax instalment payments, pension income splitting could reduce or eliminate your instalments while requiring your spouse to increase or start making instalment payments.
Pension income splitting can be a very effective way to lower your household's overall tax bill if you ensure an optimal split. To be sure pension income splitting will work for you – and to take full advantage of all your other tax-saving opportunities, seek the advice of a professional advisor.
John Scholl B. Mathematics, CGA,
Wealth Management & Financial Planning
David Pylyp; Always a worthwhile point to be made to include professionals when planning your retirement portfolio. John can be reached email@example.com or call (905) 450-2891 X529