Tax Saving Strategy – Pension Income Splitting

An income tax saving strategy that is not often discernable either from the annual income tax guide or tax return form. It is called pension income splitting. Many taxpayers who could benefit aren’t familiar with pension splitting if they are not getting professional tax planning or tax return preparation advice.

Pension Income Splitting is a tax strategy available to eligible Canadian taxpayers that allows them to split eligible pension income with their spouse or common-law partner. This strategy can result in potential tax savings by redistributing a portion of the pension income from one spouse to the other, effectively lowering the overall tax burden on the couple’s combined income.

An Accountant can optimize this calculation to ensure the best tax situation.

Who is eligible for pension income splitting?

To be eligible for Pension Income Splitting, both spouses or common-law partners must be residents of Canada and have a valid relationship at the end of the tax year. They must also elect to split their pension income for that year. The general rule is the taxpayer receiving private pension income throughout the year will be entitled to allocate up to half that income (without any dollar limit) to their spouse for tax purposes.

Pension Income Splitting is helpful to taxpayers on a pension. 

With pension income splitting, you can transfer up to 50% of most pension and RIF income to lower-income spouses or common-law partners for income tax purposes. The eligible amount can be split in any proportion as long as the total amount transferred does not exceed the maximum allowed for the year.

It is a government-sanctioned opportunity for married Canadian residents aged 65 or older. Pension Income Splitting can be particularly beneficial for couples where one spouse has a significantly higher income from eligible pensions than the other. By redistributing a portion of that income to the lower-income spouse, they may be able to collectively pay less in taxes, resulting in potential tax savings.

For those under 65

If you are under 65, the most common eligible income is from a registered company pension plan, whether a defined benefit or a defined contribution.

Suppose an individual does not have a registered pension plan. In that case, they can take advantage of this tax strategy if they convert their (RRSPs) Registered Retirement Savings Plans or deferred profit-sharing plans to income through a life annuity or a Registered Retirement Income Fund (RRIF). However, this income doesn’t qualify for splitting until after age 65.

CPP can also be split regarding government pension sources, but it is more complicated. The Canada Pension Plan (CPP) is not considered eligible income, although the benefits from the CPP can be split based on a separate set of “sharing” rules. Old Age Security (OAS) payments also are not eligible for income.

The General Income Tax and Benefit Guide provides more pension income-splitting information. Refer to the CRA website.

Many taxpayers can control the timing and degree of their tax payable in retirement because of their different potential income sources. You can only spend your after-tax income, so the tax you pay will ultimately impact your retirement lifestyle and the size of your estate for your beneficiaries.


Pension income splitting is just one tool for retirees to minimize their tax payable. In general, pension splitting is worth considering if one of the pension earners is in a higher marginal tax bracket than their spouse.

Tax laws and regulations can change, and individual circumstances may vary. As such, it’s advisable to consult a tax professional or financial advisor to determine the specific eligibility and implications of Pension Income Splitting based on a couple’s unique situation.

AMI CPA Professional Corporation is a full-service accounting firm offering a broad range of accounting services to meet the needs of businesses, entrepreneurs, and individuals in Oakville & the GTA.