Income Splitting in Retirement

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:

  1. Sharing your Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) payments
  2. Pension income splitting

These will be discussed in greater depth in the sections that follow.

Sharing Your CPP/QPP Pension with Your Spouse/Partner

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:

  • The total of the two pensions will remain the same.
  • Both spouses must be age 60 or older before the pension sharing may commence.
  • On the death of one spouse/partner, the sharing will end. The surviving spouse/partner will continue to receive his or her personal CPP/QPP benefit amount topped up by CPP/QPP survivor benefits, if eligible.

Pension Income Splitting

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:

  • Income from a defined benefit pension may be split at any age, once you start receiving it.
  • Withdrawals from retirement income vehicles (such as annuities, LIFs/LRIFs, RRIFs or deferred profit sharing plans) may only be split after the account holder is age 65.
  • The receiving spouse/partner may apply for the Pension Income Credit, if age 65 or older.

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.

Federal-Provincial/Territorial Tax Rates Tables

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. 

  • Find the marginal tax rate (MTR) for each spouse/partner.
  • Estimate how much income could be transferred to the lower earner to reduce or eliminate all the income in the higher earner’s top tax bracket.
  • Assess whether any other income or deductions are transferrable between spouses/partners to further reduce the household tax bill.
  • The objective is for both partners to be either:
    • In the same marginal tax bracket (for example, 25%); or,
    • In adjacent tax brackets (for example, the lower-earner’s MTR is in the 25% tax bracket and the higher-earner is in the next higher tax bracket).

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.

How to use the Combined Federal-Provincial Tax Rate Tables

Discover how to examine tax brackets, marginal tax rates and actual tax owing. Click the button below to start.

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Tax Planning Using a Combined Federal-Provincial Tax Rate Table

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.

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Combined Federal-Provincial/Territorial Tax Rates Tables

British Columbia

Alberta

Saskatchewan

Manitoba

Ontario

Quebec

Newfoundland and Labrador

New Brunswick

Nova Scotia

Prince Edward Island

Yukon

Northwest Territories

Nunavut