Consider splitting your income if on a pension

(NC)—Thanks to new tax rules introduced in 2006, some Canadian taxpayers on a pension can now take advantage of income splitting. The government estimates that allowing pension income splitting has provided more than $1 billion in tax relief for older Canadians.

“For qualifying taxpayers, splitting their pension income means hundreds or even thousands of dollars of tax savings,” says Cleo Hamel, a senior tax analyst with H&R Block (hrblock.ca). “But it is only qualifying pension income, so not everyone can split their income.”

Taxpayers with eligible pension income can split up to 50 percent with a spouse or common-law partner. When there is one spouse who has very little income, the tax savings are substantial.

“You need to meet three requirements to split income: the government considers you a pensioner, you have a spouse or partner who qualifies to receive the split, and you have the right kind of pension income,” says Hamel (1-800-HRBLOCK).

Most periodic pensions and superannuation payments, including foreign pensions (with the exception of income from a U.S. Individual Retirement Account), qualify for splitting. If you are 65 or older at the end of the year, it also includes annuities and payments from a Registered Retirement Income Fund (RRIF). If you are under 65, these types of payments will also qualify if you are receiving them due to the death of a previous spouse or common-law partner.

The list does not include Old Age Security payments, Canada Pension Plan (CPP) benefits, retiring allowances, death benefits or lump sum withdrawals from your RRSP. You may be able to split your CPP with a spouse or common-law partner through the Human Resources and Social Development Canada.

“If you want to take advantage of the pension-income-splitting provisions, the Canada Revenue Agency (CRA) will require both you and your spouse or common-law partner to file new Form T1032, Joint Election to Split Pension Income with your 2007 income tax return,” says Hamel.

Source: www.newscanada.com
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