Starting in 2007, individuals were allowed to split eligible pension income up to one-half with a spouse or common-law partner. Bear in mind that the split does not have to be 50/50 however, both the individual receiving the eligible pension and their common-law partner or spouse must choose and agree on the allocation of the pension split on their tax return for the year.
It’s additionally important to note that differing rules apply to individuals under age 65 when compared to individuals over age 65.
What is considered eligible income?
Generally speaking, income that is considered eligible for the income split would be income in the form of a pension from a registered pension plan (RPP), regardless of the age of the recipient. This would include any employer sponsored defined benefit or defined contribution plan.
Also eligible is any income derived from a registered retirement savings plan (RRSP) annuity, a locked-in registered retirement income fund (LIF), a non-locked registered retirement income fund (RRIF) and a deferred profit sharing plan (DPSP) annuity, but only if the recipient is 65 or older.
So what is not eligible for income splitting?
There can be no income splitting for old age security (OAS), guaranteed income supplement (GIS), Canada pension plan (CPP) and RRSP withdrawals. RRSP annuities, RRIF’s, DPSP’s annuities are also ineligible if the recipient is under 65 years of age.
As a final key point, as it pertains to CPP, keep in mind that although CPP income does not qualify as eligible pension income, there are existing rules that allow CPP pensioners to split their CPP retirement benefit up to 50% if they are both at least 60 years of age.
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