Pension Splitting

What Is Pension Splitting?

Pension splitting is a tax strategy that allows married or common-law couples in Canada to split eligible pension income for tax purposes. The goal is to reduce the couple’s overall tax bill by shifting income from the higher-earning partner to the lower-earning one.

This can result in lower marginal tax rates, reduced Old Age Security (OAS) clawbacks, and other tax savings.

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Who Can Pension Split?

To be eligible, you must:

• Be married or in a common-law partnership
  
  
• Live together in Canada during the tax year
  
  
• Receive eligible pension income
  
  

Both partners must agree to the split by signing a joint election when filing taxes.

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What Pension Income Qualifies?

You can split up to 50% of eligible pension income. The definition of “eligible” depends on your age:

If you're 65 or older:

You can split most types of regular pension income, including:

• Registered pension plans (RPPs)
  
  
• Registered Retirement Income Funds (RRIFs)
  
  
• Annuities from RRSPs
  
  
• CPP/QPP (not eligible for splitting)
  
  

If you're under 65:

Only certain types of pension income are eligible, such as:

• Defined benefit pension plans
  
  
• Annuities from superannuation plans
  
  

RRIF and RRSP income only qualifies after age 65.

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How Does Pension Splitting Work?

Pension splitting is done when filing your income tax return:

• Complete Form T1032 – Joint Election to Split Pension Income
  
  
• You can allocate up to 50% of eligible pension income to your spouse or partner
  
  
• The amount is included on both tax returns, but no money actually changes hands
  
  

It’s purely for tax reporting purposes.

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Benefits of Pension Splitting

• Lowers overall tax bill by reducing income for the higher earner
  
  
• May help one or both partners qualify for age-related credits
  
  
• Can reduce or avoid the OAS clawback if income is brought below the threshold
  
  
• No income is physically transferred — it's only an accounting adjustment

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Things to Consider

• Not always beneficial — it depends on your individual tax brackets
  
  
• May affect eligibility for income-tested benefits like GIS
  
  
• CPP and OAS cannot be split, though CPP can be shared through a separate program
  
  

It’s a good idea to consult a tax advisor or use tax software to model the savings.

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Key Takeaways

• Pension splitting lets couples share up to 50% of eligible pension income
  
  
• It’s a tax-saving strategy for retirement
  
  
• Not all pensions qualify, and age matters‍

• Done at tax time with Form T1032