Canada’s tax laws allow you to split your Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits with your spouse, a strategy that’s well worth considering if one of you is in a substantially higher tax bracket than the other. “Pension sharing” moves pension income from the spouse in the higher tax bracket to the spouse in the lower bracket.
How it works
The government determines the amount of benefits that are payable to you and your spouse based on the period you’ve been living together. The two amounts are combined and each spouse receives half of the total.
So if one spouse is entitled to a monthly benefit of $800 and the other is entitled to $200, each spouse would receive $500. As a result, less of your combined pension is taxed at the higher rate and more is taxed at the lower rate.
Note that any CPP/QPP benefits arising from the period before you lived together cannot be split. If you get divorced or one of you passes away, pension-splitting stops automatically.
Paying less tax overall is not the only benefit. By reducing taxable income, the higher-income spouse may be able to reduce or eliminate any clawback of Old Age Security (OAS) benefits and retain entitlement to the age amount credit.
Easy to set up
You can apply for pension sharing when you apply for CPP/QPP benefits or while already receiving benefits. Visit servicecanada.ca for CPP pension sharing forms and retraitequebec.gouv.qc.ca for QPP. If you change your mind later on, you can submit a cancellation request.
This material was prepared for and published on behalf of your financial advisor and is intended only for clients resident in the jurisdiction(s) where their representative is registered. This material is provided solely for informational and educational purposes and is not to be construed as an offer or solicitation for the sale or purchase of any securities or as providing individual investment, tax or legal advice. Consult your professional advisor(s) prior to acting on the basis of this material. Insurance products are available through advisors registered with applicable insurance regulators. Individual equities are available only through representatives of Assante Capital Management Ltd. In considering any particular investment, please remember that past performance is no guarantee of future performance. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. Neither CI Assante Wealth Management or its dealer subsidiaries Assante Capital Management Ltd. and Assante Financial Management Ltd., nor their affiliates or their respective officers, directors, employees or advisors are responsible in any way for any damages or losses of any kind whatsoever in respect of the use of this material. CI Assante Wealth Management is a registered business name of Assante Wealth Management (Canada) Ltd. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Assante Financial Management Ltd. is a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation (excluding Quebec). © 2021 CI Assante Wealth Management. All rights reserved.