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What 'income' is eligible for pension splitting?
April 1, 2024
10:50 am
CAD
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I could not find 'search' button on this forum so have to start new topic.
Apologies if this was already mentioned and discussed.

What 'income' is eligible for pension splitting?
Examples: Company pension? RRSP? RRIF? Income from interest? Income from dividends? CPP? OAS? Etc.?

Any insight is appreciated!

April 1, 2024
12:09 pm
MDJ
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Check here.
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting/eligible-pension-income.html

Most tax software does it all for you. But remember to do form 1032 first. I use Studio Tax and it warns you to make sure no income was split from CPP or OAS.

April 1, 2024
12:25 pm
maGIC
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CPP can be “shared” not actually split. You can share the prorated amount that you earned while living with/married with your spouse.
You have to apply for sharing in advance and your CPP is then issued to you monthly and your spouse separately. Both get T4’s. There is no sliding scale to adjust for taxes.
In my case I have a work pension that I split and the CPP share also nocks off a little income. Your spouse still gets their CPP as well.

April 1, 2024
12:38 pm
MDJ
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maGIC said
CPP can be “shared” not actually split. You can share the prorated amount that you earned while living with/married with your spouse.
You have to apply for sharing in advance and your CPP is then issued to you monthly and your spouse separately. Both get T4’s. There is no sliding scale to adjust for taxes.
In my case I have a work pension that I split and the CPP share also nocks off a little income. Your spouse still gets their CPP as well.  

Forgot about that.
Just to confirm….
Not related to income splitting on your tax forms?
Has to be pre arranged?
A good plan if you can accurately foresee the benefits, tax wise?
Is it changeable?
And what happens if the spouse dies?
Shared income shows on T slip accordingly by name by amount received?
If income splitting works….is there any other value to share CPP?

From my perspective I did not see any value to this as income splitting has always worked for us.
In the past years income splitting has only prevented me from going into the next tax bracket. And my spouses is never near the next tax bracket. Savings of $400 to $500.

@CAD
Also keep in mind that some or all medical expenses and donations can be shifted to the other spouse to assist in decreasing income tax due. Most software will give you an “optimization” option to do this for you.

April 1, 2024
12:56 pm
maGIC
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When both spouses are over 65, there is an age amount deduction of around 8,000 as a added deduction if your income is below about 43,000 (you can easily look up the exact amounts that increase every tax year). When I “share” my CPP and max out my work pension split, my spouse is still under the 43000 and gets the max age deduction of 8000+. My tax benefit is that I am over the 43000 threshold and that added CPP share nocks off an additional roughly 5000 that increases my age deduction. You lose 15% for every dollar over the ~43000. So in my case the CPP share saves me 15% of 5000. Which is roughly a tax savings in my case of $750.00

April 1, 2024
2:03 pm
MDJ
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@maGIC
Oh my. So many things I forgot to do this year. Thanks for the reminders.

I need to verify if we both received the age deduction in full.

April 1, 2024
3:07 pm
AltaRed
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Good tax software automatically does everything for you. It will optimize pension income splitting iterating to the best solution OR in at least the case of UFile, one can arbitrarily set how much pension income is split. It have let the tax software optimize for as long as I can remember.

April 1, 2024
3:18 pm
MDJ
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AltaRed said
Good tax software automatically does everything for you. It will optimize pension income splitting iterating to the best solution OR in at least the case of UFile, one can arbitrarily set how much pension income is split. It have let the tax software optimize for as long as I can remember.  

Yes. But I have a Mac. I used to use TurboTax. My preference is to have it all on my drive and not in a cloud. And not all software has a Mac version.

Thus I have used Studio Tax to meet my needs. And can be a bit archaic. But every year gets better. This year they fixed T5 splitting to show on both returns (automatically) from one set of entries vs entering it on both returns. For optimization you have to do 3 times, once for splitting, once for donations, and once for medical.

April 1, 2024
3:38 pm
AltaRed
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For the interest of others, neither TurboTax nor UFile is in the cloud if one does not pick the Online version. I download the Executable on to my PC and do my tax return there. I am aware not all tax software has a Mac version.

AFAIK, TurboTax and UFile do all the optimizations at one time iterating for the best answer. There are several things that affect the best balance (split), including the age credit talked about above, pension income splitting, charitable contributions and medical expenses, and even other possible benefits...none of which are usable by ourselves.

April 1, 2024
4:23 pm
MDJ
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But I believe from my Turbo Tax days, that you can manually adjust the optimized split. That comes in handy as it can help avoid monthly instalments.

April 1, 2024
4:32 pm
AltaRed
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MDJ said
But I believe from my Turbo Tax days, that you can manually adjust the optimized split. That comes in handy as it can help avoid monthly instalments.  

Well, yes, one can select the amount of split if one does not want to go with the optimization but why pay more tax than one needs to do so? For most people, it won't make a difference on whether one has to make quarterly installment payments or not.

I have to pay installment payments anyway. My spouse would not have to do so if I did not pension income split but that 'inconvenience' is well worth the tax savings.

April 1, 2024
4:39 pm
MDJ
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It depends how much more you have to pay if you change the split vs collecting interest on money set aside in your HISA for next year's CRA payments.

April 1, 2024
6:10 pm
maGIC
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AltaRed said
Good tax software automatically does everything for you. It will optimize pension income splitting iterating to the best solution OR in at least the case of UFile, one can arbitrarily set how much pension income is split. It have let the tax software optimize for as long as I can remember.  

Not sure if everyone is getting what I am saying. Yes Turbo Tax automatically figures out optimum split. But it cannot split CPP. Only you can “Share” CPP. So if you know that Turbo Tax is going to share the equivalent of at least half of your CPP income, then the advantage is that it creates a situation where Turbo tax can have a better or wider range to select the optimum split.
Example:
Your Private pension is $40,000.00
Your CPP is $10,000.00
If you share CPP (going forward- you cannot share or split past payments) that you apply to share on “My services Canada” and CRA decides that you can give $4,000.00 divided in monthly Monthly CPP payments to your spouse.
Your Spouse income:
No pension
CPP $12,000.00 T4A (P)
OAS $10,000.00
Shared CPP $4,000.00 (T4A (P)
Probably RIF of some amount but keeping simple.

Turbo tax can decide split of up to half of the $40,000.00
If not “Sharing” CPP then the max that spouse can make with Turbo tax pension splitting is $42,000.00 (minimum $22,000.00)
If “Sharing” CPP to spouse then max that spouse can make with Turbo Tax pension splitting is $46,000.00 (minimum $26,000.00)

Hope this helps someone

April 1, 2024
6:16 pm
AltaRed
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Agree with the example, but sharing CPP is a decision taken in a prior year and CPP issues the T4A(CPP) accordingly. Tax software simply takes what the T4As say.

I don't call that pension income splitting in the conventional sense. That is referred to as CPP sharing and is a separate decision available to the taxpayer.

April 3, 2024
8:41 am
dougjp
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Sort of on topic but mentioned in post 5, hopefully someone will have a simple answer to the following.

Why do tax programs automatically combine all of both people's medical expenses and throw them into the tax return of the spouse with the least income/lower tax bracket? On the surface it seems logical the more expenses the better under the tax return of the person with the most income.

The main accomplishment of almost all organized protests is to
annoy people who are not in them.

April 3, 2024
9:03 am
Wrayzor
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dougjp said
Why do tax programs automatically combine all of both people's medical expenses and throw them into the tax return of the spouse with the least income/lower tax bracket? On the surface it seems logical the more expenses the better under the tax return of the person with the most income.  

Most likely because the 3% deduction of income is less for the lower income person. Therefore, a larger credit is available.

April 3, 2024
9:14 am
AltaRed
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Wrayzor said

Most likely because the 3% deduction of income is less for the lower income person. Therefore, a larger credit is available.  

Indeed. One needs to remember these are non-refundable tax credits at 15% (of eligible expenses) against tax owing. It has nothing to do with one's marginal tax rate. And given there is a 3% "deductible", more expenses qualify for the 15% tax credit for the lower income spouse.

April 3, 2024
9:16 am
dougjp
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Ah, thanks 🙂

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annoy people who are not in them.

April 3, 2024
9:24 am
MDJ
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dougjp said
Sort of on topic but mentioned in post 5, hopefully someone will have a simple answer to the following.

Why do tax programs automatically combine all of both people's medical expenses and throw them into the tax return of the spouse with the least income/lower tax bracket? On the surface it seems logical the more expenses the better under the tax return of the person with the most income.  

Saying it a bit differently…..to minimize payments to CRA.
Not sure that ALL income tax programs “automatically” throw medical expenses to the spouse in the lower income tax bracket.

Doing my taxes last week I optimized pensions, donations, and medical. < = not automatically, had to trigger each one individually. Did not verify what went where but it brought my side down to be just cents under the next tax bracket for an overall additional savings in the range of $400.

BUT…. did not receive my full age benefit. Will redo do a test file to “share” some of my CPP with spouse and see if that makes a difference.

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