Victoria: 6 Things To Know About Pension Income Splitting
(NC)-If you're currently retired or nearing retirement, a significant new amendment to the Income Tax Act may help you save on taxes. In 2007, the Parliament of Canada signed into law a provision to allow pension income splitting.
There are several specific rules and conditions that define and govern these types of provisions, and pension income splitting is no exception.
That said, pension income splitting can be a very effective way to lower a household's overall tax bill if you take into account the fine points that should be looked at carefully to ensure an optimal split. For example many people aren't aware that increasing the income of the lower taxed spouse could have an impact on various credits and benefits such as claiming medical expenses.
Here are six pension income splitting facts to help you make the most of this opportunity:
- Income that qualifies for splitting is different if you are under 65 or over 65 years of age.
- If you are 65 or older you can split pension income with a spouse who is under 65 - BUT in most cases, if you are under 65 you cannot split income with a spouse who is older than 65.
- Pension income splitting could have an impact on several other tax calculations and credits including OAS benefits, medical expense credits, spousal credit, age credit clawbacks, and quarterly tax instalments.
- You don't have to split pension income 50-50. Split amounts can change each year based on your personal tax situation that year
- Pension income splitting does not require the physical transfer of funds.
- Pension income splitting is not new. CPP/QPP income splitting (or income sharing) has been allowed for several years.
This column, written and published by Investors Group Financial Services Inc. (in Quebec - a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances.