A couple cannot move any income they choose between their returns. Pension income splitting is a joint tax election for eligible income, subject to residency, relationship and other requirements.
The starting point is the pension's nature and the recipient's age, not simply a difference between the spouses' tax brackets.
Identify the eligible payment
Qualifying lifetime pension payments can be eligible before age 65. Many other retirement payments, including ordinary RRIF income, generally need the transferring spouse to be at least 65 at year-end, unless a qualifying survivor situation applies.
CPP, QPP and OAS are not eligible for this T1032 election. CPP pension sharing is a separate Service Canada arrangement. An ordinary lump-sum RRSP withdrawal is not made eligible simply by calling it retirement income.
Keep the slips and plan details so eligibility can be checked payment by payment.
Compare the household result
An eligible couple can elect to allocate up to 50% of the eligible pension income. They need not choose the maximum or repeat last year's percentage.
For a simple example, allocating 25% of $20,000 of eligible pension income transfers $5,000 for tax reporting. If $2,000 of tax was withheld on that eligible income, the corresponding allocation is $500. The income and related withholding move in the same proportion.
Compare both returns, including income-tested amounts such as OAS recovery and the age amount. A lower bill on one return alone does not establish the best combined result.
Keep the election consistent
Complete and retain the jointly signed T1032, following the filing instructions for the method used. Both returns must reflect the same election.
The receiving spouse's eligibility for the pension income amount needs its own check, particularly where ages differ. Splitting eligibility and credit eligibility are related questions, but they are not interchangeable.
