For couples, retirement creates more opportunities to income split, reducing the household’s tax burden every year. There are two income-splitting methods just for retirees:
These will be discussed in greater depth in the sections that follow.
The government allows you and your spouse/partner to pool and split your CPP/QPP pension benefits. It’s most advantageous when one spouse will receive a larger CPP/QPP benefit than the other. Effectively, there is an advantage if CPP/QPP income that would have been taxed at a higher rate under one spouse can be transferred and taxed at a lower rate under the other spouse.
The portion of the CPP/QPP retirement pensions to be shared will be calculated using the period of your lives living together in relation to your total contributory period. In most cases, your pension amount will not be the same as your spouse’s because one or both of you will have contributed before you lived together.
Other details of sharing CPP/QPP with your spouse/partner include:
Canada Revenue Agency’s and Revenu Québec pension income splitting rules allow a spouse/partner to split up to 50% of eligible pension income (eligible for the pension income credit) to a lower income-earning spouse/partner. The type of income dictates when you can start using the transfer.
Other CPP/QPP income splitting details include:
In addition to income-splitting opportunities just for retirees, investigate Income Splitting: Spouses/Partners.
Once eligible for pension income splitting, estimate the amount to withdraw from each spouse’s/partner’s registered plans and how much to income split to reduce your annual tax bill.
To learn how to read the tables and do the calculations used to calculate Kim and Darcy’s tax savings, consult the two presentations below.
Let's look at an Alberta example.
Kim's MTR is 38%. Darcy's MTR is 25%. If Kim can income split by transferring $10,000 of income to Darcy (without increasing Darcy's MTR) then the tax rate on the $10,000 is reduced from 38% to 25%. We do the math on $10,000:
$10,000 x 38% = $3,800
$10,000 x 25% = $2,500
Tax savings = $1,300. Yeah!
To learn how to read the tables and do the calculations used to calculate Kim and Darcy’s tax savings, consult the two presentations below. Below these presentations are links to the federal and provincial tax rates tables for all provinces and territories in Canada.
Discover how to examine tax brackets, marginal tax rates and actual tax owing. Click the button below to start.Begin
Which is better? An RRSP or TFSA? A personal or spousal RRSP? It depends on your marginal tax rate. Find out how. Click the button below to start.Begin