By splitting pension income with your spouse or common-law partner, you (the "pensioner") can lower your net income and reduce the amount of tax you pay. However, as you lower your income, you increase the income of your spouse (or the “pension transferee"). This increase in income could result in the pension transferee having to make instalment payments in the following year. Installment payments must be paid if the taxpayer owes $3,000 or more (or $1,800 for Québec residents).
It’s also possible for the transferee’s income to increase enough to trigger a reduction in the Age Amount credit and trigger a clawback to the amount of Old Age Security received in the tax year, which can also benefit the Age Amount and Old Age Security clawback amounts for the transferor.
When you prepare your returns together, TurboTax optimizes your split pension income to help determine the best amount to transfer. The Pension Splitting Optimizer cannot consider programs outside of the tax system that is based on individual income levels, such as:
- renters' assistance
- nursing home assistance
- income-based drug coverage
- reduction in Old Age Security (OAS) benefits