April 30: A Special Deadline for Income Splitting

April 30 is an important deadline for more than one reason: late elections for pension income splitting for 2017 expire April 30, 2021 as taxpayers can optimize pension income splitting, but only for up to three years.  Taxpayers who elect to split pension income with a spouse must claim an offsetting deduction on Line 21000 for the elected amount of income that will be reported by the pensioner's spouse. Form T1032 Joint Election to Split Pension Income is used to determine the election. What should professional tax and financial advisors know?

It starts with the question’s clients are likely to have, which you should be able to answer:

1. What sources of pension income qualify for pension income splitting with my spouse?
2. What sources do not qualify?
3. How much pension income can be split with my spouse?
4. How will pension income splitting affect our OAS benefits?
5. How will pension income splitting affect the amount of quarterly tax instalments to be paid by each spouse?
6. When should pension income splitting be ignored?
7. Is there anything that can be done if we missed pension income splitting in the past?
8. Can I use pension income splitting in the year of a separation or divorce?
9. Can pension income splitting be used in the year of death?
10. Do I have to split the taxes paid on the pension income be split to my spouse as well?

Here are some of the details you’ll need in your answers:

• The spouse with whom elected pension income is split (on Form T1032 Joint Election to Split Pension Income) reports the income on line 11600.
• Pension reported on line 11500 is eligible for the pension income amount on line 31400.  This will include PRPP income.
• The maximum amount that can be split is 50% of the eligible pension income received by the transferor (prorated in the year of change of marital status).
• In a year of marital change, the maximum is prorated for the number of months the couple was married to the number of months in the taxpayer's year. 
• In the year of death, there is no proration of amounts received by the deceased, but there is for the survivor.
• If income tax has been withheld on the pension income, the credit for the tax is split as well.
• The deadline for filing the election is the due date for filing the return. However, late and amended elections will be accepted until three years after the due date for filing the return for the year.
• Splitting eligible pension income involves balancing potentially conflicting effects:

Additional Educational Resources:  Enrol now in the Personal Pension Planning Course for Corporate Owner-Managers.