If you received eligible pension income during 2007, by making the pension income splitting election you can transfer up to ½ of your eligible pension income to your spouse or common-law partner.  Eligible pension income includes the taxable portion of annuity payments from a superannuation or pension fund plan, or if you are over 65, the annuity payments from your RRIF, LIF, or RRSP.

If your spouse would not otherwise receive pension income, by splitting your pension income he or she can utilize the pension income credit of up to $2,000 (for federal tax purposes, $1,000 for B.C. tax purposes), which can save your family up to $357 in taxes.  You can potentially get more cash in your pocket by splitting your pension, since splitting will bring your net income down to reduce any Old Age Security clawback.

The pension income splitting rules do not make spousal RRSPs obsolete, since spousal plans still have income splitting benefits for the years before your turn 71 if you have not yet converted your RRSP to a RRIF or annuity.  If you plan on retiring early, spousal RRSPs are still a great income splitting vehicle.

Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.