What are the eligibility requirements to splitting pension income and what is eligible pension income? Valid questions to a common goal of minimizing taxes during the Golden Years. Determine what pension income is eligible to split as well as other age requirements. Split pension income in the event that a spouse passes. You are not prevented from splitting your eligible pension income based on the age of your spouse.
Eligible pension income
What is eligible pension income?
Eligible pension income is generally the total of the following amounts received by the transferring spouse or common-law partner in the year (these amounts also qualify for the pension income amount):
- the taxable part of life annuity payments from a superannuation or pension fund or plan
- if they are received as a result of the death of a spouse or common-law partner, or if the transferring spouse or common-law partner is 65 years of age or older at the end of the year:
- annuity and registered retirement income fund (including life income fund) payments
- registered retirement savings plan (RRSP) annuity payments
- certain qualifying amounts distributed from a retirement compensation arrangement
For a more detailed list of eligible pension and annuity income, see the charts for line 314, pension income amount:
- Eligible pension and annuity income (less than 65 years of age)
- Eligible pension and annuity income (65 years of age or older)
Pension income that is not eligible
The following amounts received by the transferring spouse or common-law partner are not eligible for pension income splitting:
- old age security payments
- Canada Pension Plan, Quebec Pension Plan
- any foreign source pension income that is tax-free in Canada because of a tax treaty that entitles you to claim a deduction at line 256
- income from a United States individual retirement account (IRA)
- amounts from a RRIF included on line 115 and transferred to an RRSP, another RRIF or an annuity.
Variable pension benefits paid from a money purchase provision of a registered pension plan or payments out of a pooled registered pension plan are not considered life annuity payments and do not qualify unless the transferring spouse or common-law partner is age 65 or older at the end of the year or the variable benefits or payments are received as a result of the death of a spouse or common-law partner.
Do you qualify to split your pension income?
The transferring spouse or common-law partner and the receiving spouse or common-law partner can elect to split the transferring spouse or common-law partner’s eligible pension income received in the year if all of the following conditions are met:
- you are married or in a common-law partnership with each other in the year and were not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days or more beginning in the year (see the note below)
- you were both residents of Canada on December 31 of the year
- if deceased in the year, resident in Canada on the date of death
- if bankrupt in the year, resident in Canada on December 31 of the year in which the tax year (pre- or post-bankruptcy) ends
- you received pension income in the year that qualifies for the pension income amount or you were 65 years of age or older and received certain qualifying amounts distributed from a retirement compensation arangement (Box 17 of your T4A-RCA slips)
Eligible pension income can only be split between the transferring spouse or common-law partner and the receiving spouse or common-law partner.
You and your spouse or common-law partner will still be eligible to split pension income if living apart at the end of the year for medical, educational, or business reasons (rather than a breakdown in the marriage or common-law partnership).
You are not prevented from splitting your eligible pension income because of the age of your spouse or common-law partner.
This article was taken in its entirety from the CRA website found here.
If you and your spouse would like to consider splitting your pension and need a little guidance, we would be happy to help. Please contact Sunshine Coast Consulting to find out how to free up your retirement.