Should you split your CPP/QPP pension?

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.

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