Pension Split - Is it worth it?
Simplified Summary:
Pension splitting (if done properly) will never result in more taxes owing for the couple combined, and can save couples hundreds and sometimes thousands of dollars in taxes! There are even ways professionals can help seniors who keep their finances separate to both benefit from the split. Why not keep more tax money in your own pocket!?
Detailed Summary:
Pension splitting is often misunderstood, but can be a great tool for many seniors to reduce the total taxes owing each year for the couple. Pension splitting on your tax return is NOT changing who the actual pension cheque is paid to each month, but rather a way to divert taxable income from a higher income spouse to a lower income spouse.
There are very specific rules on what type of income can be split and how much can be split to your spouse:
The maximum amount that can be split in any year is 50% of the pension, however, most times it is most beneficial to do a split somewhere between 0-50%. Pension income received from work pensions can be split at any age, whereas RRSP/RIF income can only be split once the individual is age 65 or older.
The other common concern among several seniors who operate with separate bank accounts is "giving up some of MY refund". By doing a pension split and sending some of the income and related taxes paid to a spouse, sometimes their balance owing to CRA or refund may go up or down from what it would have been if the pension split had not been done. If a tax professional prepares the return, the overall couples' combined refund will be higher than without the pension split, however, one spouse may end up with less refund than they would have received by themselves.
For example: If Mr. and Mrs. Senior had filed separate tax returns Mr. Senior would have received a refund of $260 and Mrs. Senior would have received a refund of $540 for a total combined refund of $800. After the pension split was completed Mr. Senior now has a refund of $700 and Mrs. Senior has a refund of $300 for a combined refund of $1,000 ($200 more than if they did them separately). In this example, Mrs. Senior has her refund drop from $540 to $300, so she may not be wanting to do the split, however, if they can agree to split the extra refund amount between them and have Mr. Senior reimburse Mrs. Senior for the portion she lost, Mr. Senior could walk away with $360 and Mrs. Senior could have $640. This way both are happy, end up with more money in their pockets and less money paid in tax to the government.
If you want to make sure your Pension split is completed correctly, and want someone to help guide you and your spouse with splitting the extra refund, see the tax professionals at TaxTeam - 339 Main St N Moose Jaw or call 306-694-4829.
