Last week, we outlined why the pension splitting rules may benefit taxpayers, especially those aged 65 or older. Here, we talk about the opportunities for those who have not yet turned 65, as well as other special rules.

Income that can be split if the recipient is younger than 65

  • Life annuities out of or under a superannuation or pension. Except as outlined below, this is the only source that a taxpayer younger than 65 is able to split. Lifetime and bridging benefits would both qualify. Nevertheless, this is a broad category, encompassing payments from both domestic and foreign sources. (Read: How pension splitting works)
  • Items that would qualify for splitting by a 65-year-old that are received as a consequence of a spouse’s death. RRIF payments, annuity payments from an RRSP, variable pension benefits, instalment payments under a deferred profit-sharing plan, annuity payments under a DPSP or under a revoked plan, a qualifying annuity from a pooled registered pension plan, and prescribed and non-prescribed annuities will qualify for splitting. (RCA payments, as described in last week’s article, will ever only qualify at age 65.)

Answering special pension splitting questions

Is the spouse also able to claim the $2,000 pension credit?

If the spouse to whom the income is allocated (the pension transferee) is not already claiming the $2,000 pension credit, he or she may be able to claim it. The age of the pension transferee is important here, except for under life annuities, for which there is no age limit. With other items, the pension transferee will have to be age 65 to claim the pension credit.

Let’s look at two cases. Donald, age 68, might elect to transfer $20,000 of RRIF income to his spouse Susan, who is 58. Susan could not claim the $2,000 pension credit because of her age.

Now consider Amanda, who is 54 and drawing a pension from her employer’s plan. If she allocates at least $2,000 to her 57-year-old spouse, Jonathan, he is able to claim the $2,000 pension credit.

Read: Essential tax numbers

How do you transfer withheld taxes between the spouses’ returns?

As part of completing the election, taxes that have been withheld from the income being allocated to the other return are also allocated to that return. Here’s an example: assume that Nathaniel had $30,000 of RRIF income from which $9,000 of tax had been withheld. If he chooses to allocate the maximum of $15,000, or half the amount, to his spouse, he must also allocate $4,500 of the withheld taxes to his spouse’s return.

Can the election be filed late?

While the tax rules have a 10-year limitation period for certain elections, the pension splitting election cannot be late-filed beyond the normal three-year period. More importantly, taxpayers need to understand how CRA calculates interest. The interest payable by the pension transferor who late-files an election may be much higher than the interest credited to the pension transferee. The rate applying to interest payable is higher (5% versus 3%), and is effectively backdated. In certain cases, a late-filed election may not be beneficial once interest charges/refunds are factored in. As a result, it is important to make elections on a timely basis.

Read: Think you know pension splitting? Take this quiz

Quebec rules

The rules we have discussed here and last week are the federal rules. There are differences in Quebec, with a notable difference being that Quebec recently eliminated the ability for a taxpayer under age 65 to split income. (We hope that the federal government doesn’t follow Quebec’s lead.) We also note that where both spouses reside in Quebec at the end of the year, the election made for Quebec provincial tax purposes does not need to be the same as was made for federal tax purposes. (In fact, making an election at the federal level does not compel a taxpayer to make an election for Quebec tax purposes.) The election is made by filing Schedule QRetirement Income Transferred to Your Spouse, which is the equivalent of federal form T1032.

Some planning points

Sharing CPP

Not all spouses can share CPP retirement benefits. The portion of the CPP retirement pension that can be shared is based on the number of months the spouses lived together during their joint contributory period — the time when either could have contributed to the CPP and/or QPP.

Let’s imagine that we have newlyweds who are age 68 and met when they were already collecting their CPP retirement benefits. This couple has nothing to share. (The new CPP Post-Retirement Benefit never qualifies for sharing.) However, this same couple could share eligible income because of the pension splitting rules. To enjoy the benefits of pension splitting, they need only be spouses at the end of the year. (In the year of the marriage, there will be a proration.) Thus, the pension splitting rules provide considerable scope to do appropriate tax planning.

Annuity products that are insurance products

Let’s look at a late-in-life second marriage. Say Nadia and Piotr have drawn up a marriage contract under which their assets will be left to their respective children, and not to each other. This couple may want to consider acquiring insurance products (e.g., term funds or term-certain annuities) that allow for beneficiary designations. The annuity products would allow them to income split yet have the wealth flow to the appropriate beneficiaries.

Situations in which joint tenancy with rights of survivorship (JTWROS) would not be appropriate

Nadia and Piotr would not want to hold assets that are meant to flow to their respective children on a JTWROS basis, because doing so would mean the surviving spouse would receive the assets upon their death. Again, insurance products such as annuities allowing for beneficiary designations could be considered.

Commuting a pension from a defined benefit Registered Pension Plan (DB RPP)

A member of a DB RPP may be able to commute their pension entitlement upon termination of employment or retirement. Several issues need to be considered when determining whether commutation is appropriate. For purposes of this discussion, let’s only focus on the pension splitting rules.

As we have already indicated, a life annuity out of or under a superannuation or pension plan can be split, irrespective of the age of the plan member. Except for Quebec provincial tax purposes where the taxpayer has not yet turned 65, someone receiving a pension could split the lifetime benefit (and bridge benefit) much earlier than age 65.

If the person instead transfers what can be transferred to a (locked-in) vehicle (i.e., RRSP or RRIF), with perhaps some amount also being transferred to an RRSP because they had contribution room, they cannot make use of the pension splitting provisions until they year that they turn 65. Even if they acquired an annuity from the RRSP (or RRIF) at, say, age 55, this annuity will only be characterized as eligible pension income in the year they turn 65. (The same applies for RRIF or LIF payments.)

For many DB RPPs, especially those providing generous benefits, the plan member cannot transfer the full commuted value to the (locked-in) RRSP or RRIF because of the Maximum Transfer Value provision. A plan member may not necessarily have any RRSP room, and thus cannot shelter the excess. When this excess amount is paid to the member from the RPP, it is not considered pension income that qualifies for pension splitting. (It is also not a “retiring allowance” which might qualify for a rollover to an RRSP.)

A member who is able to commute a pension in full or in part may want to ascertain whether the RPP permits the commuted value to be used to acquire a Section 147.4 “copycat” annuity (or annuities). If this is possible, the annuity income would qualify for pension splitting, irrespective of age. The tax rules contain specific provisions requiring that the rights under the annuity must not be “materially different” from the rights under the RPP. If this condition is not met, the entire commuted value becomes taxable. Note that “rights” do not refer to only the amount of the pension payments. CRA’s position is that this provision is not intended to allow a plan member to reconfigure the amount or modify the form of the benefits provided under the RPP.

Where such an annuity is to be acquired, the full amount of the commuted value must be used. (Only if the purchase price of the copycat annuity is less than the commuted value may the plan member be entitled to the excess.) With these annuities, it is also possible that the commuted value may not be sufficient to fully replicate the rights under the RPP. CRA’s position is that the annuity will not automatically be offside if, for example, the amount of the payments is reduced, but clients should seek specialist advice. Nonetheless, an annuity is an attractive possible solution, as it allows for the potentially significant tax bill that could arise with a transfer to a (locked-in) RRSP (or RRIF) to be avoided. It is especially attractive where the RPP (and perhaps employer) are not solvent.

Where life annuities are acquired from an insurer, Assuris coverage will have to be reviewed.

Individual Pension Plans (IPPs)

IPP income can qualify for splitting under the pension splitting rules. The payout must qualify as a life annuity. Let’s look at a 65-year-old plan member, Rita, who was able to accrue the maximum pension starting in 1991. As at January 1, 2017, she would have accrued a pension of 26 x $2,914.44, or $75,775. Since an IPP typically provides an indexed pension, this amount would grow as inflation rises. Hence, what qualifies for splitting would continue to grow.

IPP funding is age-sensitive. The general rule is the higher the age, the higher the funding. If Rita were the only plan member, the employer could have a potentially significant additional tax deduction available for terminal funding when Rita started to draw her pension.

While IPPs are more complex administratively than other retirement arrangements, they can be a powerful tool for the right client.

Read: Three myths about IPPs


The top marginal tax rates in many provinces have crossed the 50% threshold, meaning taxpayers are keeping less than fifty cents on the dollar. Pension splitting is a powerful tax planning tool, so add it to your arsenal to be able to discuss various strategies with clients and prospects.

Planning is becoming increasingly complex, especially where we are dealing with second marriages and blended families. In such situations, adding insurance solutions (e.g., annuity options) gives you more potent tools.

Take our quiz again to see how well you know pension splitting now!

Lea Koiv, CPA, CMA, CA, CFP, TEP, is a tax, pension and retirement expert who has held senior roles at a national insurer and international accounting firms. Reach her at