2020-0845211E5 Pension income splitting

Principal Issues: Whether eligible pension income can be allocated from the lower-income individual to the higher-income individual.

Position: Yes.

Reasons: Not precluded by pension income splitting rules in section 60.03.

Author: Podor, Karina
Section: 60.03

XXXXXXXXXX                                                                                                2020-084521
                                                                                                                        K. Podor
April 29, 2020

Dear XXXXXXXXXX:

Re:   Pension income splitting

This is in reply to your email dated April 3, 2020 concerning pension income splitting. You ask whether it is permitted for the lower-income spouse to transfer one half of their eligible pension income to the higher-income spouse. Although this would result in an increase in the total combined income tax payable by you and your spouse, you indicate that it would nevertheless be beneficial because it would serve to reduce the fees incurred for your spouse to live in a retirement home (which are based on your spouse’s net income for income tax purposes).

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

The CRA’s general views on pension income splitting are set out at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html. In general, an individual who receives eligible pension income (the “transferring spouse or common-law partner”) is permitted to allocate up to 50% of that income to their spouse or common-law partner (the “receiving spouse or common-law partner”), provided certain conditions are met. The allocation may impact income-tested benefits and credits, as noted on the webpage Other topics:

     Allocating pension income to a spouse or common-law partner reduces the transferring spouse or common-law partner's net income and increases the receiving spouse or common-law partner's net income. As a result, benefits and tax credits that are calculated based on the total of the net incomes of both spouses or common-law partners (such as the GST/HST credit) will not change because of pension splitting. However, pension splitting will affect any tax credits and benefits that are calculated using one taxpayer's net income, such as the age amount, the spouse or common-law partner amount, and the repayment of old age security benefits. The allocation of pension income may also affect certain federal, provincial, or territorial programs.

The pension income splitting rules are typically used by couples to allocate pension income from the higher-income individual to the lower-income individual so as to reduce their total combined income tax payable. However, there is nothing in these rules that would prevent allocating pension income in the opposite direction (that is, from the lower-income individual to the higher-income individual).

We trust these comments will be of assistance.

Yours truly,

Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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