Weekly Tax Tips
Review pension income splitting with spouse
Date: 18 Mar 2011
If you or your spouse earns pension income eligible for the pension tax credit, an election can be made to transfer up to one-half of the eligible pension income to the other spouse. This is a joint election that can be taken advantage of when filing your and your spouse’s tax returns. The amount transferred reduces the transferor spouse’s net income, and increases the transferee spouse’s net income so a tax saving should generally arise where the transferee spouse has a lower marginal tax rate. However, one should keep in mind that there can be negative effects that arise from increasing a lower-income spouse’s net income. For example, some tax credit amounts (particularly the age credit) and the OAS clawback are based on net income. With this in mind, in certain cases it may be beneficial to elect to transfer from the lower-income spouse to the higher-income spouse.
Another possibility to consider if you or your spouse is age 65 or over is whether additional amounts should be withdrawn from your RRIF with a view to splitting some of the additional amount. This could allow you to take further advantage of a spouse’s low tax rates, or a spouse’s losses carried forward (other than capital losses). However, you can only split up to 50% of the additional amount received, so some of the extra RRIF withdrawals will be taxed in your hands — this cost would have to be compared with the tax benefit from splitting more income.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 18 Mar 2011.
More Tax Tips
Here!
