Do the splits and save!

When you and your partner do the splits, you can save on taxes! The federal government allows individuals to save on income tax by letting married or common-law couples shift up to 50% of eligible pension income from one spouse to another. In splitting eligible pension income from the higher to lower income partner the aggregate, or combined, tax bite should be effectively reduced. (The shift of income is simply reported as such for tax purposes – there is no actual payment to your partner.)

To qualify for this pension income splitting, you and your partner must be Canadian residents either married or living in a common-law relationship and must file an annual joint election (Form T1032). Regardless of your age, eligible pension income can include benefits such as:

• Lifetime pension, bridging payments, or annuity payments from a registered pension plan or foreign pension plan.
• Income received as a result of the death of a spouse or common-law partner.

At age 65, income from these sources also becomes eligible for pension income splitting:

• Payments from your investments held within a matured RRSP, RRIF, LIF and DPSP
• The interest component of the annuity payments under a contract purchased with non-registered funds.

You can qualify for pension income splitting even if you are receiving a periodic pension benefit and have started a second career.

But your income may change year-to-year, so you should frequently re-evaluate to determine if you still qualify for pension income-splitting and the percentage of income that should be transferred to the lower income earner in order to maximize tax savings.

Pension income splitting can be a good tax-reduction strategy for most retirees. To be sure it’s right for you, check out the tax implications of income splitting -- and check out other tax-saving and income-enhancing strategies by talking to your tax professional and professional advisor.

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.