Affiliated with National Financial Insurance Agency Inc.

1. The amount to be split is deducted on the tax return of the spouse that actually received the pension (the higher tax-bracket spouse). There will be a new line on the 2007 tax return to enter the amount being deducted in computing the taxable income of the higher tax-bracket spouse.
    
2. The amount is added to the income reported on the tax return of the other spouse (the lower tax-bracket spouse) Again, there will be another new line on the 2007 tax return. At this new line, the amount being added to income of the lower tax-bracket spouse is entered.
    
3. The tax withheld on the actual pension payments to the higher tax-bracket spouse is allocated to the lower tax-bracket spouse on the same basis as the pension income was split. This will remove the cash flow burden of the lower tax-bracket spouse needing to come up with a significant amount of money on April 30.
    
4. Both spouses must agree to pension split and the amount to be split. Form T1032, Joint Election to Split Income, must be completed and signed by both spouses. It is an annual election, so spouses can elect to pension split one year and not the next and vice versa.

Unlike CPP splitting, there is no need to contact the payer of the pension income. The pension can continue to be paid to one spouse and the tax information slip (T4A, T4RIF) issued solely to the actual recipient of the pension (higher tax-bracket spouse). No actual payment needs to be made to the other spouse. In other words, nothing new needs to be done except making a few new notations on tax returns and completing the form T1032 election.

What type of pension qualifies for pension splitting?

When the actual pension recipient is 65 or older at the end of a year the pension income eligible for “splitting” include:

• Annuity payments from a Registered Pension Plan (RPP)
• Annuity payments from a Deferred Profit Sharing Plan (DPSP)
• Registered Retirement Income Fund (RRIF) and Life Income Fund (LIF) withdrawals

When the actual pension recipient is under 65 at the end of a year the pension income eligible for “splitting” include:

• Annuity payments from an RRP, plus
• Amounts noted above under “eligible” if received by virtue of death of spouse

If you would like more information on this subject, or any other financial matter, please don’t hesitate to contact us.

 
Theresa Wever and the Money Concepts Team.