Pension Income Splitting: Save taxes and enhance your family’s wealth

July 2013



Income splitting is a tax planning strategy that shifts income from a higher income earner to a lower income earner in order to reduce the overall tax paid by the family.

While there are various income attribution rules in the Income Tax Act that restrict income splitting strategies, one strategy that is widely utilized during retirement is pension income splitting.

Canadian residents who receive eligible pension income can allocate up to 50% of this income to their Canadian resident spouse thereby reducing taxes by shifting income from a higher income earner to a spouse who is in a lower tax bracket. As a further benefit, by keeping the retiree’s taxable income below a certain threshold, they can reduce the amount of the Old Age Security (OAS) claw back each year.


Only certain types of income qualify as eligible pension income depending on the recipient’s age.


For individuals aged 65 and over, eligible pension income includes:

  • Prescribed annuity payments
  • Lifetime annuity payments under a registered pension plan (RPP), a registered retirement savings plan (RRSP) or a deferred profit sharing plan (DPSP) and
  • Payments from a registered retirement income fund (RRIF)


For individuals under 65 years of age, eligible pension income includes:

  • Lifetime annuity payments under a registered pension plan and
  • Certain other payments received as a result of the death of the individual’s spouse or common-law partner.

For income tax purposes, the amount allocated will be deducted from the income of the transferor (the person who actually received the pension income) and will be included in the income of the transferee (the person to whom the pension income is allocated).


There is no age restriction for the spouse or common law partner who receives the income allocation.


Managing your wealth effectively requires an annual review of all the income splitting opportunities available. To learn more on how to capitalize on income splitting strategies to help you save taxes and enhance your family’s wealth or to receive our complimentary copy of our publication entitled "Income Splitting Opportunities”, please contact your Investment Advisor.