Retirement income splitting for couples in Canada
Canada taxes each spouse separately, and tax rates rise with income. Two retirees with $60,000 each pay noticeably less tax than one with $120,000 and a spouse with none. Income splitting moves income toward the lower-income spouse so more of it is taxed in the lower brackets.
Why it matters
- Lower brackets. Each spouse has their own basic personal amount and their own lower brackets to fill.
- OAS clawback. The OAS recovery tax is based on each person's own net income: 15 cents per dollar above about $95,300 (July 2026 to June 2027). Spreading income can keep both spouses under the line.
- The pension income amount. A federal credit on up to $2,000 of eligible pension income. Splitting can let both spouses claim it, depending on age and the type of pension.
1. Pension income splitting
You can allocate up to 50% of your eligible pension income to your spouse or common-law partner on your tax returns. Nothing is actually paid to the other spouse; you both file Form T1032 each year, and you can choose a different split every year.
- At any age: life annuity payments from a registered pension plan (a workplace defined benefit pension, for example).
- From age 65: also RRIF withdrawals, LIF payments and annuity payments from an RRSP.
- Not eligible: CPP, OAS, and lump-sum RRSP withdrawals.
This is one reason many people convert part of an RRSP to a RRIF at 65 rather than waiting until 71.
2. CPP pension sharing
Unlike pension splitting, CPP sharing actually changes who receives the payments. If you are both at least 60 and receiving CPP, you can apply to Service Canada to share the CPP each of you earned while you lived together, so each receives an equal part. It helps most when one spouse's CPP is much larger.
3. Spousal RRSP
The higher-income spouse contributes to an RRSP owned by the other spouse and gets the deduction. In retirement the money is taxed in the lower-income spouse's hands. Withdrawals are taxed back to the contributor if there were contributions in the year of withdrawal or the two calendar years before, so stop contributing a few years before you need the money. RRIF minimum withdrawals are not caught by this rule.
4. TFSAs for both spouses
You can give your spouse money to fill their own TFSA, and the income it earns inside the TFSA is not taxed back to you. TFSA withdrawals are not income, so they don't affect either spouse's tax or OAS.
When one spouse dies
RRSPs, RRIFs and TFSAs can pass to a surviving spouse without tax. But the survivor is then taxed as a single person on the combined income, with one set of brackets and one OAS threshold, so taxes often rise even as spending falls. A good plan tests that years in advance.
Example. A 67-year-old has $80,000 of RRIF withdrawals and CPP; the spouse has $20,000. Allocating $30,000 of the RRIF income to the spouse leaves each with $50,000, and more of the household's income is taxed in the lowest brackets. The CPP isn't eligible for splitting, which is where CPP sharing can help.
See the effect on your own plan. The free Personal / Couple Planner keeps separate accounts for each spouse, applies pension income splitting, ranks withdrawal orders by what is left after tax, and shows what happens when one spouse dies. It can also choose the best split for you.
Open the Personal / Couple PlannerGeneral information for planning and education, not financial, tax or legal advice. Quebec has its own rules for some of these; check with a tax professional for your situation.