Do I Qualify?
- You are married or in a common-law partnership at year-end
- Both you and your spouse are Canadian residents at year-end
- You have eligible pension income (RPP payments, or RRIF/annuity payments if you are 65 or older)
- Your spouse is in a lower tax bracket than you
- Both spouses are willing to sign and file Form T1032 with your returns
Overview
Pension income splitting is one of the most powerful and underused tax strategies available to Canadian retirees. Using Form T1032, couples can reallocate up to 50% of eligible pension income from the higher-earning spouse to the lower-earning spouse — on paper only. No money actually moves between accounts. The result: the higher earner drops into a lower tax bracket, OAS clawback may be reduced or eliminated, and the receiving spouse may qualify for the $2,000 pension income tax credit for the first time.
Eligible pension income (by age):
| Age of transferring spouse | What qualifies |
|---|---|
| Any age | RPP (Registered Pension Plan) payments, certain annuities from an RPP or DPSP |
| 65 or older | RRIF withdrawals, LIF/PRIF payments, annuity payments from an RRSP, DPSP, or RRIF |
CPP and OAS cannot be split via T1032 — CPP has a separate sharing arrangement (CPP sharing, Form ISP1002), and OAS has no splitting mechanism.
How It Works
Step 1 — Estimate the optimal split
Calculate how much income to transfer to minimize the household’s combined tax bill. Generally, you want to equalize both spouses’ incomes as much as possible — but not perfectly, since the pension income credit ($2,000) and OAS clawback threshold ($93,454 in 2025) add additional optimization variables.
Step 2 — File Form T1032
Both spouses complete and sign Form T1032 (Joint Election to Split Pension Income) and attach it to their respective T1 tax returns. The transferring spouse reports the reduced pension income; the receiving spouse reports the additional income. Both report the split on Line 11600 / Line 21000 of their T1s.
Step 3 — Claim the pension income tax credit
If the receiving spouse did not previously have eligible pension income, they can now claim the federal pension income tax credit of $2,000 × 15% = $300 (plus provincial equivalents) on the transferred income. Many provinces offer additional pension income credits.
What Most People Don’t Know
- OAS clawback avoidance can be the biggest win. OAS is clawed back at 15 cents per dollar of net income above $93,454 (2025). Transferring $20,000 of pension income to a lower-earning spouse can restore $3,000 in annual OAS payments for the higher earner.
- You elect it annually — optimize every year. The T1032 is filed each year and the split amount can change. As your income and situation change, the optimal split may change too.
- It doesn’t cost anything and has no downside. Unlike CPP sharing, pension splitting requires no application to a government body, no permanent change, and can be undone the next year simply by not filing T1032.
- Provincial tax savings stack on top. Federal income tax savings are just the starting point — provincial rates add another 5–15% in savings depending on the province.
Example Savings
| Scenario | Without splitting | With splitting | Annual saving |
|---|---|---|---|
| Spouse A: $80,000 pension; Spouse B: $0 | Spouse A pays ~$18,000 tax | After $40,000 split: ~$12,000 combined | ~$6,000/yr |
| Spouse A: $100,000 pension (above OAS clawback threshold); Spouse B: $30,000 | OAS fully clawed back | After split: Spouse A below threshold | $7,000–$8,000 OAS restored |
Legal Basis
- Income Tax Act (Canada), Section 60.03 — Pension income splitting election.
- Form T1032 — Joint Election to Split Pension Income.
- CRA Guide T4040 — RRSPs and Other Registered Plans for Retirement.
Frequently Asked Questions
Can we split CPP or OAS income using Form T1032?
No. CPP and OAS cannot be split via the pension income splitting election on Form T1032. CPP has a separate mechanism called CPP pension sharing (Form ISP1002, applied through Service Canada), and OAS has no splitting mechanism at all. T1032 applies to Registered Pension Plan payments, RRIF withdrawals (if the transferring spouse is 65+), and certain annuity payments.
Does the amount we split on T1032 need to actually be transferred between our bank accounts?
No. Pension income splitting is a paper election only — no money moves. You simply elect the split on your tax returns, the transferring spouse reports reduced pension income, and the receiving spouse reports the additional income. CRA adjusts your respective taxes accordingly.
Do we need to elect pension income splitting every year, or is it automatic once we file T1032?
You must elect it every single year by filing Form T1032 with both tax returns. It is not automatic and does not carry forward. Each year you can choose a different split amount — or skip splitting entirely — depending on what minimizes your combined household tax that year.
Can pension income splitting help reduce or eliminate the OAS clawback?
Yes, and this is often the biggest financial benefit. OAS is clawed back at 15 cents per dollar of individual net income above approximately $93,454 (2025). By transferring pension income to the lower-earning spouse, you can bring the higher-earning spouse’s net income below the clawback threshold, restoring thousands of dollars in annual OAS payments.
Does the receiving spouse need to be 65 to receive the pension income tax credit on split income?
The receiving spouse must meet the relevant age rules based on the type of pension income being split. For RRIF withdrawals to be eligible for splitting, the transferring spouse must be 65 or older. However, for RPP (defined benefit pension) payments, the age restriction does not apply and a younger receiving spouse can claim the $2,000 pension income tax credit on the transferred amount.