Pension income splitting for retirees

What pension income splitting does

Pension income splitting lets one spouse or common-law partner move part of their eligible pension income onto the other person’s tax return for the year. The person who receives the pension is the transferring spouse. The person who is allocated part of it is the receiving spouse. The pension itself is still paid to the transferring spouse; the election only changes who reports the income for tax purposes.

The point is usually to even out taxable income between two people so that less of it is taxed at higher rates. Whether that helps depends on both returns, which is why it is a calculation to run each year rather than a setting to switch on and forget.

Check that your income and household qualify

Eligible pension income is generally the income that also qualifies for the pension income amount on line 31400. Age matters for some types. The taxable part of life annuity payments from a pension plan can qualify at any age. RRIF payments, including life income fund payments, annuity payments and RRSP annuity payments generally qualify only if the transferring spouse is 65 or older at the end of the year, or if the payments are received because a spouse or partner died.

Some income never qualifies. Old Age Security and Canada Pension Plan or Quebec Pension Plan payments cannot be split with this election, and neither can income from a United States individual retirement account, tax-free foreign pension income covered by a treaty deduction, or RRIF amounts that were transferred onward to an RRSP, another RRIF or an annuity.

There are household conditions as well. You both must be residents of Canada on December 31, and you must not have been living separate and apart because of a relationship breakdown for a continuous period of 90 days or more that includes December 31. Living apart for medical, educational or business reasons does not by itself disqualify you. The receiving spouse can be any age.

Make the joint election on Form T1032

You can allocate up to 50 percent of the transferring spouse’s eligible pension income. You do not need to use the same percentage every year, and only one joint election can be made for a tax year. If both of you have eligible pension income, you decide which of you is the transferring spouse.

Both of you complete and sign Form T1032, Joint Election to Split Pension Income, and the information on the two forms must match. The CRA says the form must be attached to both paper returns and filed by the filing due date. If you file electronically, keep the signed form in case the CRA asks to see it later.

The transferring spouse deducts the elected amount on line 21000. The receiving spouse reports it on line 11600. Both returns also use the form to work out the pension income amount on line 31400 and the income tax withheld on line 43700, so complete the whole form rather than only the allocation step.

Share the tax already withheld

Tax withheld at source on the pension must follow the income. If you allocate half of the eligible pension income, half of the tax withheld on that income moves to the receiving spouse as well. Where one slip mixes eligible and non-eligible pension income, the form shows how to work out the withholding that relates only to the eligible part.

The CRA cannot approve a reduction in the tax withheld because of the election. If the split means the receiving spouse will owe tax, plan for that in advance, for example by asking the payer to withhold more or by setting money aside, and ask an accountant whether instalments are needed.

CPP pension sharing is a different process

Canada Pension Plan pension sharing is not the same thing. It is handled by Service Canada, not through the tax return. You must live with your spouse or common-law partner, and at least one of you must be receiving or have applied for a CPP retirement pension. Either of you can apply, online through My Service Canada Account or on paper with form ISP1002, with both Social Insurance Numbers on every document.

Sharing starts when Service Canada approves it and cannot be backdated. The portion you can share depends on the months you lived together during your joint contributory period, and your combined total stays the same. Sharing can raise the pension of the spouse who contributed less and lower the pension of the one who contributed more, so confirm the effect on each of you before applying. It stops in several situations, including divorce, death, or a cancellation request from both of you, and each pension is then adjusted back to what it would have been without sharing.

Look at credits, benefits and OAS repayment

Allocating income lowers the transferring spouse’s net income and raises the receiving spouse’s. Benefits based on the combined net income of both spouses, such as the GST/HST credit, do not change because of the split. Amounts based on one person’s net income, such as the age amount, the spouse or common-law partner amount and the repayment of Old Age Security, can.

That cuts both ways. Moving income away from a spouse near the OAS repayment threshold can reduce or avoid repayment, but moving it onto a spouse who is already close to the threshold can create one. For 2025 income the threshold is $93,454 and the repayment is 15 percent of the amount above it. Other provincial and territorial programs may also be affected.

A simple illustration with round numbers: if one spouse has $60,000 of eligible pension income and the other has none, a 50 percent split puts $30,000 on each return. Your own result will differ, so run the numbers both ways before choosing a percentage.

Keep records and know when to get help

Keep the signed T1032, the pension slips for the year, notices of assessment for both spouses and any CPP sharing approval letter. If you need to change the election later, the CRA may allow a late or amended election or a revocation in some circumstances, if the application is made within three calendar years after the filing due date, and both of you must agree.

Bring both returns, last year’s notices of assessment and all pension and OAS slips to your accountant so the split can be tested for both of you at once.