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Pension Income Splitting

Income splitting is a tax planning technique allowing a taxpayer to shift income to another taxpayer within the family unit who is in a lower tax bracket resulting in tax savings as income will be taxed at a lower rate.

Eligible Pension Income

During retirement, one of the more common arrangements is pension income splitting between married or common-law spouses. Up to 50% of income that qualifies as “eligible pension income” may be transferred by one spouse (pensioner) to the lower income spouse (pension transferee).

Eligible pension income refers to the amount received by the pensioner and depends on the person’s age. The following summarizes what qualifies as eligible pension income that can be split:

A pensioner may split eligible pension income regardless of the age of the spouse. That is, a pensioner above age 65 may split pension income with a spouse under age 65. However, the transferred pension income would not qualify for the pension income credit for the spouse that is under age 65.

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Pension Income Splitting