Pension Splitting - A Review of The Rules

• the pension income or qualified pension income, as the case may be, and
• $2,000

Claimants Over Age 65. Pension income includes amounts included in the taxpayer's income for the year that are:

• payments in respect of a life annuity from a superannuation or pension plan,
• RRSP annuity,
• RRIF payment,
• DPSP annuity,
• the interest portion of annuity payments, and
• amounts accrued under certain life insurance policies and annuities.

Claimants Under Age 65: Qualified pension income includes amounts included in the taxpayer's income for the year that are:

• payments in respect of a life annuity from a superannuation or pension plan, and
• amounts received from the following because of the death of the taxpayer's spouse:
• RRSP annuity,
• RRIF payment,
• DPSP annuity,
• amounts accrued under certain life insurance policies and annuities.

Excluded: Specifically excluded from the definitions of pension and qualified pension income are:

• Old Age Security,
• Canada or Quebec Pension Plan Benefits,
• a death benefit
• an amount that is included in income but for whom a deduction is taken (such as exempt foreign pension or the deducted portion of US Social Security)
• a payment received out of or under a salary deferral arrangement, a retirement compensation arrangement, an employee benefit plan, an employee trust or the Saskatchewan Pension Plan.

Claim the pension income amount on line 314 of Schedule 1 Federal Tax. No separate form is provided by CRA for calculating the Pension Income Amount but an area is provided on the Federal Worksheet to calculate the amount.

If the taxpayer has a spouse or common-law partner and the taxpayer's income is low enough that the pension income amount is of no benefit, then the unused amount may be transferred to the spouse or common-law partner using Schedule 2 Federal Amounts Transferred From Your Spouse or Common-law Partner.

As the provincial pension amount varies by province, the transfer of the provincial amount will differ from the federal amount and must be performed on a special Schedule 2 for the province of residence. In some provinces, the Pension Income Amount is indexed.

Note: As 2007 was the first year of the provision and many software optimizations were not perfected or available on time, it is recommended that last year's choices be reviewed. T1ADJ adjustment requests will be allowed on the election.