Pension income splitting

RRIF’s and LIF’s Eligible for Splitting Pension Income

Clients are often surprised when I tell them that the Registered Retirement Income Fund (RRIF) and Life Income Fund (LIF) are considered pension income. This opens up a few opportunities to save on taxes and put extra cash in your pocket each year.

Rules Around Pension Splitting

Under pension rules, the CRA allows you to split up to 50% of eligible pension income with your spouse or common law partner. You must both be Canadian residents for tax purposes, and live in the same house, except under circumstances where the spouse may be out of province for school etc. The transferor (holder of the RRIF or LIF) must be over 65. The transferee spouse does not have to be 65 or older.

How Does Pension Splitting Work?

The transferor spouse has the split portion of income deducted from their tax return. It is then added to the income of the other spouse—transferee. It is that simple. This lowers the income of the transferor spouse and shares the income with a spouse who hopefully has a lower tax burden.

There are other sources of pension income that are eligible as well. Canada Pension Plan (CPP) is not included as pension income for the purpose of splitting, and is governed by different rules.

Being well informed and planning ahead with how RRIF’s and LIF’s are taxed can add substantial cash flow to you and your family. Contact your wealth advisor for more information.