Happy Valentine’s Day! It was said that money is one of the top 3 reasons for divorce. It is also tax season. Let’s talk about income split – a topic of money, relationship and tax! Sharing is loving especially when it comes to money. 😊
In many marriages or common-law relationships, the two spouses earn different income and might be in a very different tax bracket. It makes sense to even out the income to save tax. There are quite a few legitimate ways to do that.
Pension income splitting – RRIF, LIF, annuity, RRSP annuity payments are eligible for income splitting if the transferring spouse or common-law partner is 65 years of age or older at the end of the year. Please see more details from the CRA website.
Spousal RRSP – The higher income spouse used his/her RRSP room and contribute to an RRSP under another spouse’s name. this will even out the future RRIF value and payment in retirement. Some might retire before turning 65 when RRSP payments was eligible for income split. Spousal RRSP can provide more flexibility. There is a rule to keep in mind. If the funds are withdrawn within 3 years of a contribution to a spouse’s RRSP, all or part of the withdrawn from the spousal RRSP amount will be taxed as income to the contributing spouse.
CPP sharing – you can apply to receive equal shares of the CPP retirement pensions that you both earned during the years you were living together. It seems long marriage does help on this regard. 😊 You can see that in the previous link Pension income splitting says CPP is not eligible, but CPP sharing says yes. Both are government website. The reason is that the government deems splitting and sharing are two different things. Splitting is to transfer some income from the high income spouse to the lower one. Sharing is to combine both income and give each spouse 50%. The government could just explain it better by putting link of CPP sharing right at the webpage where they said CPP is not eligible for splitting. Just add a sentence saying that CPP is not eligible for splitting but eligible for sharing. This website gives a good explanation on the difference.
Wish you all the love and prosperity!