Canada’s senior citizens and pensioners have made significant contributions to our great country. They’ve worked hard, raised families, and have paid taxes, which have allowed us to enjoy economic success and prosperity. For these efforts, it is important to ensure our seniors and pensioners enjoy a long and healthy retirement. Our Government is committed to making this possible for as many Canadian seniors through measures included in our Government’s Tax Fairness Plan.
The Tax Fairness Plan was introduced by the Honourable Jim Flaherty, Minister of Finance, on October 31, 2006, and came into effect on January 01, 2007. The Plan includes pension income splitting for spouses and common-law partners, which results in substantial savings for Canadian seniors and pensioners on the tax payable on pension income.
Both the individual receiving the eligible pension income and his or her spouse or common-law partner, must agree to the allocation in their tax returns for the tax year in question. This means that an individual in receipt of eligible income may allocate up to one half of this pension income to their spouse or common-law partner. The pension income splitting allocation will be available for the 2007 and subsequent tax years and must be made one year at a time.
Eligible income for credit splitting includes:
- Income in the form of a pension from a registered pension plan (RPP), regardless of the recipient’s age (i.e. a pension from an employer-sponsored defined benefit plan or defined contribution plan).
- Income from a registered retirement savings plan (RRSP) annuity, a registered retirement income fund (RRIF), a LIF (a locked-in RRIF), or a deferred profit sharing plan (DPSP) annuity, if the recipient is 65 years of age or older.
Income that is ineligible includes:
- Old Age Security (OAS)
- Guaranteed Income Supplement (GIS)
- Canada Pension Plan (CPP)/Quebec Pension Plan (while CPP income does not qualify as eligible income pension income for the pension income credit, existing rules permit CPP pensioners to split their CPP retirement benefit).
- RRSP annuities, RRIFs, and DSP annuities (if recipient is under age 65)
- RRSP withdrawals
- Income from retirement compensation arrangements (RCA’s)
The tax savings from the income splitting credit places money back into the hands of Canada’s seniors and pensioners and will ultimately benefit Canada’s aging population. In many cases, only one partner worked outside the home and as a result, these couples live on one pension and are paying a high individual tax rate on that one particular pension. This overdue initiative by our Government will offer greatly needed financial relief for this group.
In addition to income splitting for seniors and pensioners, our Government also announced a broad-based senior income tax reduction by increasing the Age Credit Amount by $1,000 from $4,066 to $5,066. This will offer tax relief to low and middle-income seniors.
Both of these initiatives are part of our Government’s promise to provide senior citizens and pensioners with significant and meaningful tax relief. Our Government has made considerable progress, but believes there is still a great deal more to do to reduce the tax burden of all Canadians, including seniors. We will continue to work towards reducing this burden in the coming months.
For more information on income that qualifies for the pension income credit, please contact the Canada Revenue Agency (CRA) at
www.cra.gc.ca or 1-800-959-8281.