Pension income splitting is one of the simplest tax-reduction tools available to retired Canadian couples. By allocating up to 50% of eligible pension income to the spouse with less income, on paper (no money actually moves), couples can often lower their combined tax, and the split can reduce an OAS clawback because it changes each spouse’s net income. The key detail: before age 65, only lifetime pension payments from a registered pension plan (such as a defined benefit pension) qualify, unless the income is received because a spouse died; from age 65, RRIF withdrawals and annuities also become eligible. That is why converting even a small RRSP to a RRIF at 65 unlocks both the pension income tax credit and splitting eligibility. The split is one of the couple-level choices covered in our tax filing guide.
How Pension Income Splitting Works
Step
Details
1
The spouse who receives eligible pension income (the transferring spouse) elects to split it
2
Couple agrees to allocate up to 50% to the other spouse (usually the one with less income)
3
Both file Form T1032 (Joint Election to Split Pension Income)
4
CRA taxes each spouse on their allocated share
Important: No money actually changes hands. It is only a tax allocation on paper. The conditions:
You and your spouse or common-law partner were residents of Canada on December 31 (or the date of death).
You were not living separate and apart because of a relationship breakdown for 90 days or more including December 31.
Both of you sign Form T1032 and file it with your returns by the filing due date.
RRIF, LIF and RRSP annuity payments qualify only if the transferring spouse is 65 or older at the end of the year, or received them because of a spouse's death.
OAS and CPP/QPP benefits are not eligible.
Eligible Pension Income
Under Age 65
Income Type
Eligible?
Defined benefit pension
✅ Yes
RRIF withdrawals
❌ No (unless received because a spouse died)
RRSP annuity payments
❌ No (unless received because a spouse died)
CPP/QPP
❌ No (use CPP sharing instead)
OAS
❌ No
RRSP lump-sum withdrawals
❌ No
Age 65 and Over
Income Type
Eligible?
Defined benefit pension
✅ Yes
RRIF withdrawals
✅ Yes
Life annuity from RRSP
✅ Yes
LIF/LRIF payments
✅ Yes
DPSP annuity
✅ Yes
Prescribed annuity
✅ Yes
CPP/QPP
❌ No
OAS
❌ No
RRSP lump-sum withdrawals
❌ No
Employment income
❌ No
Tax Savings Examples
The figures below are rounded illustrations that do not assume a province, so real results vary.
Example 1: Large Income Gap
Without Splitting
With Splitting
Spouse A (pension)
$90,000
$65,000
Spouse B (CPP + OAS)
$20,000
$45,000
Spouse A tax
~$18,000
~$12,500
Spouse B tax
~$2,000
~$5,500
Combined tax
~$20,000
~$18,000
Annual savings
~$2,000
Example 2: OAS Clawback Avoidance
Without Splitting
With Splitting
Spouse A income
$100,000
$75,000
Spouse B income
$18,000
$43,000
Spouse A OAS clawback (15% of income over the $93,454 threshold for 2025 income)
~$982
$0
Combined tax savings
~$3,500
OAS saved
~$982
Total benefit
~$4,500
Example 3: Both Spouses Get Pension Tax Credit
Without Splitting
With Splitting
Spouse A pension credit
✅ (already has pension)
✅
Spouse B pension credit
❌ (no eligible income)
✅ (pension income amount of up to $2,000)
Extra credit value
The federal credit on that amount, plus any provincial credit
Maximum Tax Savings by Income Gap
Higher Spouse Income
Lower Spouse Income
Approx Annual Savings
$50,000
$20,000
$500-1,000
$70,000
$20,000
$1,500-2,500
$90,000
$20,000
$2,500-4,000
$100,000+
$20,000
$3,000-5,000+
$100,000+
$50,000
$1,000-2,000
Key insight: The bigger the income gap, the bigger the savings.
CPP Sharing (Separate from Pension Splitting)
Feature
Details
What it is
Spouses or common-law partners share a CPP retirement pension, based on the months they lived together
How
Apply to Service Canada (not CRA)
Who qualifies
Legal spouses or common-law partners living together, where at least one is receiving or has applied for a CPP retirement pension
Amount
Based on the months you lived together during your joint contributory period
Advantage
Reduces higher-earning spouse’s income
Application
Form ISP-1002
Note: CPP pension sharing is not the same as the CRA’s pension income splitting.
How to File
Step
Action
1
Determine eligible pension income amount
2
Decide percentage to split (up to 50%)
3
Both spouses complete Form T1032
4
Allocating spouse deducts the split amount on their return
5
Receiving spouse reports allocated amount on Line 11600
6
Paper filers attach T1032 to both returns; electronic filers keep it in case the CRA asks
Each spouse still files their own return; filing taxes as a couple or separately covers the other choices couples make on their returns. Because the election is made on the returns themselves, it can be made after year-end, though the eligible pension income must be received in that year; most of the moves in the year-end tax planning checklist do.
Strategies and Tips
Strategy
Details
Convert RRSP to RRIF at 65
Makes withdrawals eligible for splitting
Split to give spouse pension credit
A split that gives them eligible pension income lets them claim the pension income amount (up to $2,000 federally)
Split to avoid OAS clawback
Keep income below $93,454 (2025 income)
Optimize split percentage
Modeling different split amounts, rather than automatically splitting 50%, can reveal a better result
CPP sharing
A separate arrangement with Service Canada that may result in tax savings
Coordinate with TFSA withdrawals
TFSA income doesn’t affect splitting calculations
Common Mistakes
Mistake
Impact
Forgetting Form T1032
No election is made; a late election needs the CRA’s approval
Splitting more than 50%
Not allowed; the limit is 50% of eligible pension income
Trying to split CPP on T1032
CPP must use separate ISP-1002
Not modelling lowest tax outcome
May over-split or under-split
A spouse’s signature missing
Both must sign T1032
Forgetting provincial rules
Some provinces have different credits
The Bottom Line
Pension splitting is a joint election made on Form T1032 with both spouses’ returns, and it can lower a couple’s combined tax. The bigger the income gap between spouses, the bigger the potential savings. Some retirees convert at least a small portion of their RRSP to RRIF at age 65 so the withdrawals become eligible for both splitting and the pension income amount (up to $2,000). CPP sharing (a separate application to Service Canada) is a different arrangement that may result in tax savings, and TFSA withdrawals are another source of income in a retirement income strategy.