Pension Splitting Gives Canadians a Rare Tax Break
January 22nd, 2010 | by admin |The Canadian financial advisors we speak with are lamenting the creeping fees and taxes impacting their clients, and admit that it’s hard to find a good news tax story these days (think HST).
But one tax measure that has brought good news to the homes of many retired Canadians is the Pension Splitting rule that was brought into effect in the 2007 tax year. For those households that qualify, the tax savings generated has been significant.
It is especially effective in households where one spouse draws a pension (or draws income from a RRIF) while the other does not. Up to 50% of the pension can be transferred to the tax return of the other spouse, reducing the combined taxes payable.
Trying to calculate the optimum amount to transfer can be a daunting task. Tax preparers and individuals using software programs have no problem. That said, the calculation is not automatically done. In fact, the preparer must elect to split the pension income. Given the potential for significant savings you don’t want to overlook this election.
For more information, visit the Government of Canada’s page on income splitting.