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When it comes to taxes, most people are preoccupied with one question: how can I pay less?

An abundance of credits and deductions are available in the Canadian tax code, all of which provide a way for individuals to reduce their tax burden. Numerous strategies can also be employed to minimize one’s tax burden further. One of these strategies is pension income splitting.

What Is A Pension Income Split?

A pension income split allows you to transfer a portion of your eligible pension income to your spouse or common-law partner. In a pension income split arrangement, there is a transferring spouse and a receiving spouse. Generally, the transferring spouse is in a higher tax bracket than the receiving spouse. Moving a portion of pension income to the spouse in the lower tax bracket allows a couple to take advantage of tax savings.

Do You Qualify For Pension Income Splitting?

To qualify for pension income splitting, you must meet all the following requirements:

  • You were living together with your spouse or common-law partner at the end of the last tax year and have not lived apart for more than 90 days since then.
  • You and your spouse or common-law partner were residents of Canada at the end of the last calendar year.
  • You were the recipient of a pension income eligible for the pension income amount or were at least 65 years of age and received qualifying income from a retirement compensation plan.

If you and your spouse or common-law partner lived apart for medical, work, or school-related reasons, you still qualify for pension splitting. Only separate living arrangements due to a marriage or relationship breakdown would disqualify you.

What’s Considered Eligible Pension Income?

You could have a variety of pension income sources as a retired taxpayer, but not all qualify for pension splitting. The income sources deemed eligible for income splitting depends on the two factors: your age and the type of pension income.

Below are some of the types of pension income eligible for splitting:

  • Regular annuities and income averaging annuity contracts (IAAC)
  • Annuity payments from a Deferred Profit Sharing Plans (DPSP)
  • Income from Registered Pension Plans (RPP)
  • Income from Registered Retirement Income Funds (RRIF)
  • Annuity payments from a Registered Retirement Savings Plans (RRSP)
  • Payments from Variable Pension Benefits (VPB)
  • Payments from Equivalent Pension Benefits (EPB)
  • Payments from foreign pension plans (with some restrictions)

While all of the above qualify for pension splitting arrangements, there are additional conditions based on whether or not you have reached the age of 65. In general, there are fewer restrictions on pension splitting income sources for those over 65.

For example, if you’re under 65, eligible annuity payments only qualify for pension income splitting if they result from the death of a spouse or common-law partner. If you’re over 65, these same conditions don’t apply.

The following sources of pension income don’t qualify for pension income splitting:

  • Canada Pension Plan (CPP) benefits
  • Quebec Pension Plan (QPP) benefits 
  • Old Age Security (OAS) benefits 
  • RRSP withdrawals
  • U.S Individual Retirement Account (IRA) withdrawals 

How Do You Split Your Pension Income?

To split your income with your spouse, you must complete Form T10321 Joint Election to Split Pension Income when you file your tax returns. On this form, you’ll specify who will be the transferring spouse and who will be the receiving spouse. 

You’ll also need to state the amount of pension income you’re transferring. The maximum transfer amount permitted is 50% of your eligible pension income. You must record the amount you’re transferring on Line 21000 on your return. Your spouse must record this same amount on Line 11600 on their return.

Both you and your spouse need to sign the form and attach it to your tax returns. Ensure that the information on both forms is identical before doing so.

Here is an example of how pension income splitting works to lower your tax liability:

Suppose you earn $65,000 in retirement income per year, which places you in the 20.5% federal tax bracket. Your spouse earns $20,000 in retirement income per year, which puts them in the 15% federal tax bracket. 

Assuming all your retirement income qualifies for pension splitting, you’d be eligible to transfer up to $32,500 to your spouse.

You could elect to transfer $20,000 of your pension income to your spouse, which would reduce your total taxable income to $45,000 and simultaneously increase your spouse’s income to $40,000. Your revised taxable income now puts you in the first federal tax bracket of 15%, while your spouse’s taxable income keeps them in the 15% federal tax bracket. The result is you pay less tax overall as a couple.

Keep in mind the example above doesn’t take into account non-eligible pension income such as CPP and OAS, which you’ll need to factor into the calculation.

How Much Can You Claim?

The pension income amount is a federal non-refundable tax credit that allows individuals to claim up to $2,000 of eligible pension income on their tax return. The credit translates to tax savings of $300 ($2,000 multiplied by the federal tax rate of 15%).

The pension income amount is still applicable within a pension income splitting arrangement. If you’re the transferring spouse, the total amount you can claim is the lesser of:

  • $2,000
  • Your eligible pension income, excluding the amount transferred to your spouse

If you’re the receiving spouse, you’ll be able to claim the lesser of:

  • $2,000
  • Your eligible pension income, including the amount transferred to you.

To calculate the pension income amount for you and your spouse, fill in the required information in Step 4 of Form T1032.

Can I Make A Late Or Amended Election?

The CRA permits you to file a late or amended election to split your income with your spouse in an earlier year. You can also revoke a previous election. The process involves adjusting your prior tax returns and is allowed if you meet these conditions:

  • You do so on or before the day that is three calendar years after the tax filing date for the year you wish to apply the election to.
  • Both you and your spouse jointly agree to the amendment or late filing.
  • Both you and your spouse complete and sign a new Form T1032.
  • In the case of an election revocation, you and your spouse send a jointly signed letter to the CRA requesting the cancellation.

Pension Income Splitting FAQs

What’s the benefit of splitting your pension income? 

The reason for splitting pension income is to reduce the amount of tax you and your spouse must pay. The tax rate in Canada is progressive, both federally and provincially, which means that as your income increases, so do your tax obligations. Pension income splitting enables both spouses to configure their income levels to result in tax savings between them. This arrangement is accomplished by transferring a portion of pension income from the spouse in the higher tax bracket to the spouse in the lower tax bracket. Provided the receiving spouse doesn’t get bumped up into a higher tax bracket due to the transfer, the couple will benefit from tax savings.

Is there an age limit on who can split their pension income?

At the federal level, you can split eligible pension income with your spouse at any age. However, if you’re under 65, you’ll be subject to more restrictions. In Quebec, you may only transfer part of your eligible pension income to your spouse if you’re at least 65 years old by the end of the tax year.

If my partner and I have similar income levels, should we split our pension income? 

If both you and your spouse are in the same tax bracket, pension splitting will not provide any real benefit, as the transfer will not reduce your marginal tax rate (the tax paid on each additional dollar of income). However, there may still be value in pension splitting. A split may increase the pension tax credit for the receiving spouse, which, as explained previously, can generate up to $300 in tax savings. To claim the pension tax credit under a pension income splitting arrangement, complete Step 4 on Form T1032.


Pension income splitting can be a valuable strategy to minimize the tax obligations of you and your spouse. Keep in mind, though, that it yields the most benefits when the disparity between spouses’ income is substantial. 

Ensure you understand the rules surrounding the eligibility of income sources, the impact of your age, and other crucial qualifying criteria before you utilize pension income splitting. Implementing the strategy is as simple as using specialized tax software to do all the number-crunching, saving you time and effort while realizing easy tax savings.

Mark Gregorski avatar on Loans Canada
Mark Gregorski

Mark is a writer who specializes in writing content for companies in the financial services industry. He has written articles about personal finance, mortgages, and real estate and is passionate about educating people on how to make smart financial decisions. Mark graduated from the Northern Alberta Institute of Technology with a degree in finance and has more than ten years' experience as an accountant. Outside of writing, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.

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