Even for younger people, doing the splits can be difficult but, believe it or not, doing the splits becomes easier as you mature. Of course, what we’re talking about here is not physically doing the splits but financially – as in splitting your pension income with a spouse or common-law partner to save on taxes.

The federal government allows eligible retirees to save on income tax by letting couples shift up to 50 per cent of the higher earner’s eligible pension income to the lower earning partner who is taxed at a lower rate, reducing the tax bite for both of you. (By the way, you don’t actually have to pay the shifted income to your partner, you simply report it for tax purposes.)

To qualify for pension income-splitting, you and your partner must be Canadian residents and either married or living in a common-law relationship. Regardless of your age, income from these sources is eligible for income splitting:

Lifetime pension, bridging payments, or annuity payments from a registered pension plan or foreign pension plan.

Payments to a surviving spouse from investments held within a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) annuity contract resulting from the death of the original annuity owner.

At age 65, payments from your investments held within a RRIF also become eligible for pension income-splitting.

The interest component of the annuity payments under a contract purchased with non-registered funds.

You can qualify for pension income-splitting even if you are receiving a periodic pension benefit and have started a second career.

But your income may change year-to-year, so you should frequently re-evaluate to determine if you still qualify for pension income-splitting and the percentage of income that should be transferred to the lower earner in order to maximize tax savings.

Pension income-splitting is a valuable tax-reduction strategy for most retirees – but to be certain it’s right for you, check out the tax implications of income-splitting — and get good info on other tax-saving strategies – by talking to your professional advisor.

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

Contact David Brown at 250-315-0241 or at [email protected] to book your appointment.