Pension Income Splitting Canada Guide 2025

How to split up to 50% of eligible pension income with your spouse — one of Canada's most powerful retirement tax strategies.

What Is Pension Income Splitting?

Pension income splitting is a federal tax provision that allows a spouse or common-law partner receiving eligible pension income to allocate up to 50% of that income to their partner's tax return. Both partners pay tax on their respective shares at their own marginal rates, reducing the couple's combined tax bill when their incomes differ significantly.

This is a paper transaction only — money does not physically move between accounts. Both spouses simply file the election (Form T1032) with their annual tax returns.

Which Income Qualifies?

Income Type	Age 65+	Under 65
Registered pension plan (DB/DC)	Eligible	Eligible
RRIF withdrawals	Eligible	Not eligible
Annuity payments from RRSP/DPSP	Eligible	Not eligible
CPP	Not eligible (separate CPP sharing rules)	Not eligible
OAS	Not eligible	Not eligible
TFSA withdrawals	Not eligible (already tax-free)	Not eligible

Tax Savings Example

Spouse A has $80,000 of RRIF income taxed at ~33% combined (federal + provincial). Spouse B has $20,000 of total income taxed at ~20%. By splitting $30,000 to Spouse B:

• Spouse A: income drops to $50,000 — lower marginal rate
• Spouse B: income rises to $50,000 — still manageable rate
• Combined tax savings: potentially $3,000–$5,000/year depending on province

Pension Splitting and the Pension Income Tax Credit

The pension income splitting election also allows the receiving spouse to claim the $2,000 pension income tax credit — even if they had no pension income of their own. Both spouses can now claim the credit, doubling the benefit for the couple.

CPP Sharing: Different from Pension Splitting

CPP has its own separate sharing provision (not the same as pension income splitting). Couples can apply to Service Canada to share their CPP retirement pensions — each receives a portion of the combined CPP entitlement. This is irrevocable while both are alive and collecting CPP, unlike pension splitting which can be elected differently each year.

How to Elect Pension Income Splitting

Each year, both spouses must file Form T1032 (Joint Election to Split Pension Income) with their tax returns. You choose the amount to split (up to 50%) each year based on what minimizes your combined tax. A tax professional or software like TurboTax can optimize the split amount annually.