Understanding Pension Income Splitting for Seniors

The Benefit of Splitting Pension Income

If you receive a larger pension than your spouse or common-law partner, it may be beneficial to transfer over a portion of your income on your tax return. This technique reduces your taxable income by shifting a portion to the lower-earning partner, thus reducing your overall tax burden as a retired couple or household.

Qualifying for Pension Income Splitting

• In order to qualify to split your pension income, you and your spouse or common-law partner must reside in Canada and live together at the end of the year.
• You are allowed to live apart if the reason is related to work, school or medical necessity.
  • However, if you live apart due to a breakdown in your relationship, you cannot split your pension income.

Pension Income Eligible For Splitting

Splitting Pension Income

• You may transfer up to 50 percent of your pension to your spouse or common-law partner.
• To split your pension income, you and your spouse or common-law partner must complete a Form T1032 — Joint Election to Split Pension Income.
  • The form has to be signed by both parties and be available upon request by CRA.
  • The transferred portion is reported on Line 11600 of the income tax return of the transferee.
  • The deducted portion is reported on Line 21000 of the transferor’s income tax return
• When you transfer some of your pension income, your taxes paid which are associated with the transferred amount will be reduced and transferred on the transferee’s income return. So Line 43700 of both returns will be changed accordingly.

This form is quite complex. If you are using tax preparation software such as TurboTax standard, your calculations will be done automatically based on your income type, amount and your overall tax situation. TurboTax also provides a pension splitting optimizer that allows you to see the best amount to split and make changes if you wish.

Pension Income Amount

When you report eligible pension income, you may be entitled to an additional credit called Pension Income Amount of up to $2000. Pension splitting may qualify a spouse who doesn’t directly receive pension income to claim this extra amount as well.

Based on your entries, TurboTax will automatically calculate and allocate your (and your spouse’s) pension income amount on line 31400 of the T1 form. For more information on which pension is eligible for Pension Income Amount, please visit this CRA link or the link to the CRA table.

Filing Your Taxes

As with other forms and schedules, if you are filing your return electronically, it is not necessary to mail in your Form T1032 — Joint Election to Split Pension Income. A copy is submitted to CRA when you Netfile. Keep your T slips on hand in case you are ever asked to provide more information. Keep in mind that T1032 has to be signed by both couples. If one of the spouses is incapable of signing this form, the partner will need a power of attorney to sign on his/her behalf.

Turbo Tax standard Products or higher optimizes your pension splitting options automatically.

Check this CRA link for more information on line 1150 (other pensions and superannuation) of your tax return.

References & Resources

• CRA “Eligible pension income”
• CRA “Line 11600 – Elected split-pension amount”
• CRA “Line 21000 – Deduction for elected split-pension amount”