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CAN YOU BENEFIT FROM INCOME SPLITTING?
THIS ARTICLE WAS WRITTEN BY EDWARD JONES FOR USE BY YOUR LOCAL EDWARD JONES FINANCIAL ADVISOR.
SUBMITTED BY SCOTT FOSTER, FINANCIAL ADVISOR, EDWARD JONES 317 DECLAIR ROAD, MADOC, ON K0K 2K0

Income splitting is a strategy that aims to level out income earned by married or common-law spouses with the goal of
reducing the household’s tax bill. An added benefit is that income splitting can help protect income-tested benefits such as
Old Age Security, which is reduced at a higher income.
Canada has a graduated tax system meaning as Canadians earn more, they pay a higher rate of tax on the higher earning. For
example, in 2024, federal tax on taxable income $55,867 or less is 15% – but every dollar earned above that up to $111,733 is
taxed at 20.5%. The effect of a graduated tax system is that two partners who each earn $100,000 will pay less total tax than
two partners who earn $150,000 and $50,000, respectively. That’s where income splitting can be beneficial.

What income qualifies for income splitting?
Only certain types of income qualify for income splitting, and the biggest opportunity is in retirement when you can split up
to half of eligible pension income with your married or common-law spouse. Pension income eligible for income splitting
includes: Life annuity payments from a Registered Pension Plan (RPP) at any age, Variable pension benefits from an RPP
starting at age 65, Withdrawals from a Registered Retirement Income Fund (RRIF) or Life Income Fund (LIF) starting at age 65
Income from an annuity, including an annuity purchased with a Registered Retirement Savings Plan (RRSP) or Deferred
Profit-Sharing Plan (DPSP), starting at age 65. In addition, a couple can share Canada Pension Plan (CPP)/Quebec Pension
Plan (QPP) income, whether one or both spouses contributed. The portion that’s sharable depends on how many months
spouses lived together while contributing to the CPP/QPP. Couples cannot share the CPP post-retirement benefit, which is
earned by those who both contribute to, and receive benefits from, CPP/QPP between the ages of 60 and 69 inclusive.
You cannot split Old Age Security, U.S. Individual Retirement Account (IRA) income or any other foreign pension.

Can you split income while working?
A spousal (or common-law partner) RRSP allows working couples
to split some income right away and lay the groundwork for more
equal income in retirement. It’s an effective strategy when a
couple have different incomes now and expect to have different
incomes in retirement.
Here’s how it works: The higher-income spouse contributes to
the spousal RRSP on behalf of the lower-income spouse. In
return, the higher-income spouse uses their RRSP contribution
room and deducts the contribution at their marginal tax rate,
which would likely be higher if their income was higher.
Meanwhile, the lower-income spouse builds up retirement
savings and then, in retirement, withdrawals from the spousal
RRSP will be taxed in that spouse’s hands.
Contributions to a spousal RRSP must generally remain in the
plan for the rest of that calendar year plus two more years for
withdrawals to be taxable to the spouse rather than the
contributor.

Income splitting requires regular reviews
Income splitting is just one way to ensure your household gets
the most out of income earned. Like all tax planning, it's not a
“set it and forget it” strategy. Your advisor can work with you to
develop, and review annually, a customized approach that
considers many aspects of your personal and family situation to
save taxes and enhance your financial well-being.