How pension income splitting works
If you and your spouse or common-law partner are both Canadian residents, you can allocate up to 50% of eligible pension income from one return to the other on your tax filings. Eligible income includes registered pension plan payments (at any age) and RRIF or annuity income (after age 65). CPP and OAS are not eligible for pension splitting (CPP has a separate sharing program). The goal is to equalize income across spouses to pull both into lower brackets.
Higher earner has $80,000 of RRIF income at age 66 (Ontario, roughly $15,500 tax). Spouse has $20,000 of CPP and a small pension (roughly $1,500 tax). Combined family tax: about $17,000. Split $30,000 of the RRIF to the spouse, both now report $50,000 each. Combined family tax: about $13,500. Annual saving: $3,500, for one tick of a CRA form.
Forgetting to elect pension splitting because the income is technically not shared in the bank account. The election is filed on your tax return (Form T1032), not at the institution. Talk to your accountant before filing or use tax software that asks the question explicitly.
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