Preparing Your Taxes: Retirement Planning

Robert E. Flux
| 2/5/2022

Whether you’re a pensioner, retiree, or pre-retiree, it’s never too early to begin preparing your taxes and take full advantage of the deductions available to you. In addition to contributing to a Registered Retired Savings Plan (RRSP), the following are other means in preparing for retirement.

Income Splitting in Canada

There may be an opportunity to income-split with your spouse through spousal RRSP contribution, or through pension income splitting.

Spousal RRSP

A spousal RRSP is a special RRSP where you make the contributions and get the tax deduction on your tax return, but your spouse is entitled to the future withdrawals from the plan, and hence they pay the tax on future withdrawals.

My spouse already has their own RRSP – is this the same thing?
No. Your spouse’s RRSP is one where they make contributions, get the tax deduction, and are entitled to the future withdrawals from the plan.
 What’s the benefit of contributing to a spousal RRSP?
Using a spousal RRSP is an allowable way to income split with a lower income spouse – this means you could save tax! In the example where one spouse stays at home to raise the children and earns no income, they cannot contribute to an RRSP as they have no earned income. If the working spouse only invests in their own RRSP, upon retirement the working spouse will have all the retirement income to report on their tax return, likely resulting in higher taxes owing. Whereas if the working spouse contributes half to their own RRSP and half to a spousal RRSP, then upon retirement the income will be split between both spouses, which in general would lead to fewer taxes owing. As well, if you are over 71, you can continue to contribute to a spousal RRSP if your spouse is under 71.
Can’t we split our RRSP income in retirement using the “pension income splitting provisions”? Why bother with the spousal RRSP?
Spousal RRSP’s have been allowable for a long time, whereas the “pension income splitting provisions” have only been around since 2007. Who knows if the “pension income splitting provisions” will still be around when you retire? As well, there are very specific rules to qualify for “pension income splitting.” For example, a lump-sum RRSP withdrawal does not qualify, nor do certain RRSP annuity payments made before the age of 65. So, using a spousal RRSP maximizes your flexibility down the road to income split, both before and after retirement.
Can I contribute to a spousal RRSP and have them withdraw it in the same year?
No. To ensure spousal RRSPs aren’t abused to income split in the short term, there is an attribution rule that would allocate any income inclusion from the spousal withdrawal to the contributing spouse if a withdrawal is made within two years after a contribution year. For example, if the working spouse contributes to a spousal RRSP in 2008, then no more contributions could be made in 2009 and 2010, and an amount could then only be withdrawn in 2011 without having the income attribution rule apply.
So, I could use a spousal RRSP to claim a tax deduction on my return in 2020, have my spouse withdraw it in 2023 and have it included in their income?
That’s right. But this strategy isn’t for everyone. First of all, the purpose of an RRSP is long term retirement savings via tax deferral, so doing such a strategy defeats the purpose of the RRSP. However, in cases where a couple needs the cash-flow but wants to benefit from lower taxes, they could use this strategy to income split. The downfalls are the couple would be without the cash for 3 years before the non-working spouse can withdraw the funds without the attribution rules applying, as well this strategy is only effective in four-year cycles as no further contributions can be made in years between the contribution year and the withdrawal year and in the withdrawal year. We suggest seeking advice from a professional accountant and investment advisor before implementing anything contained herein.
Retirement Planning

Did you know?

  • The RRSP contribution limit is $27,830 for 2021.
  • Regular and spousal contributions for the 2021 taxation year may be made up to March 1, 2022.
  • Overall tax savings are most significant for individuals who are currently in a high tax bracket but will be in a lower bracket when the RRSP money is withdrawn.

Pension Income Splitting

First introduced in 2007, the pension income splitting rules allows up to one half of pension income received, that qualifies for the pension income tax credit, to be transferred to your spouse or common-law partner (both of which are referred to as "spouse" below).

Why would we want to do this?
Splitting income allows the higher income spouse to transfer income to the lower income spouse, thereby taking advantage of the lower marginal tax rates of the lower income spouse and resulting in a lower overall tax bill to the couple. Because of this benefit available to spouses, the Income Tax Act only allows income splitting under very limited situations.
When does this apply?
Pension income splitting rules apply to taxation years 2007 and beyond.
What pension income can be split?
Payments from Registered Pension Plans (RPP), Registered Retirement Income Funds (RRIF), and some foreign pension payments.
What pension income does not qualify for splitting?
Old Age Security (OAS), Canadian Pension Plan (CPP) (which can already be split under CPP rules), death benefits, retiring allowances, RRSP withdrawals, employee benefit plans.
How to split the pension income?
By electing on Form T1032 prior to the filing deadline, in both spouse's personal tax returns to transfer the income. The transferor will deduct the elected amount from their income, and the transferee will include the elected amount in their income.
Is the transferred pension income eligible for the $2,000 pension income tax credit?
Do we have to split our pension income?
No. Each and every tax year you can elect how much pension income to split if any. The rules recognize that many spouses like to keep their finances separate from one another.
Will splitting pension income affect OAS payments?
Yes. Depending on the income levels of the spouse's it could decrease your OAS clawback, or it could, in fact, increase your OAS clawback. For this reason, it is essential that you seek professional advice in determining whether you should split pension income or not.

Old Age Security Pension & Eligibility

The OAS program is a Government of Canada pension program funded out of general tax revenues. To be eligible for this benefit you must be over the age of 65 and can expect to receive approximately $7,487 per year (indexed quarterly for inflation).

OAS Clawback

If you are collecting OAS and your net income in 2021 is over $79,845, you are required to repay some or all of your OAS benefits. This “clawback” is the lesser of your OAS benefits received in the year and 15% of your net income that is over $79,845. The OAS clawback is calculated solely on your net income and is not affected by your spouse’s income. Note that if your net income is $129,757 or greater in 2021 you will be required to repay all OAS benefits. If you are eligible to receive OAS but would be subject to a full clawback, you may consider deferring receiving OAS until a year in which the clawback is reduced or eliminated. You can delay the receipt of your OAS for up to five years beyond the normal start date of 65. Deferring the receipt of OAS will increase your OAS entitlement when you begin to collect it by 0.6% per month, increasing your overall maximum annual net income by up to 36%.

OAS Deferral

To defer your OAS pension, follow the directions in your My Service Canada Account or send a letter to Service Canada.

If you have started receiving OAS payments but would like to defer them, you must request this cancellation in writing. To be eligible for this deferral you can only have received the pension benefits for less than six months. Please note you will be expected to repay the benefits you have received to date.

There is no financial advantage in deferring your OAS pension after the age of 70, you may in fact be at risk at losing benefits. If you are over the age of 70 apply now.

Canadian Pension Plan

The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit for individuals 60 years of age or older, who have made at least one valid contribution to the CPP program. Below are some highlights of the pension plan:

  1. The maximum employer and employee 2021 CPP contributions is $3,166, and for those self-employed the contribution limit is $6,333. The 2021 CPP maximum pensionable earnings is $61,600.
  2. The 2019 CPP maximum pensionable earnings is $58,700.
  3. If you are an employee between the ages of 60 and 65 and receiving the CPP retirement pension, you must still contribute to the CPP.
  4. If you are an employee between the ages of 65 and 70 you can choose to opt out of making contributions to the CPP.
  5. If you are under the age of 70 and decide to work while receiving your CPP retirement pension you will qualify for the CPP Post-retirement benefit, which will increase your retirement income.
  6. Your employer must match your CPP contributions described in (3) and (4).

The CPP is not automatic; you must submit an application. The amount you receive each month is based on your average earnings throughout your working life, your contributions to the CPP, and the age you decide to start your CPP retirement pension.

CPP Sharing & Spouse Benefits

If you are collecting CPP, you may be eligible to pension share this income with your spouse or common-law partner provided you live with them. If a taxpayer’s spouse is in a lower marginal tax bracket, this may be an effective means of income splitting and reducing the couple’s overall tax bill. Individuals must apply through Services Canada.

Pension Income Tax Credit

A $2,000 pension tax credit is available in Canada if you earn eligible pension income, which typically includes income from a registered pension plan, income from a registered retirement income fund (RRIF), and annuity payments from an RRSP.  If you are eligible to receive pension income from one of these plans and are not currently doing so, you may consider starting to collect some of this pension income to claim the pension tax credit. One means of doing this would be converting a portion of your RRSP to a RRIF in order to receive eligible pension income on which the pension tax credit can be claimed.


This article is not intended to be a summary of the technical provisions of the Income Tax Act, and before you undertake any tax planning strategy, it is important to review it thoroughly with your Crowe MacKay tax advisor

If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.

Rob has over 20 years of accounting and tax experience, working with a wide range of businesses in various industries. Specializing in owner-manager taxation and estate planning since 2005, Rob ensures clients are properly structured from a tax and business perspective, while considering their future succession, retirement, and estate planning goals. Believing in a team approach, he works regularly with clients’ investment advisors and lawyers on planning matters. Rob has extensive experience with trusts and estates, investments, personal and corporate taxes, advising his clients throughout all stages of life.
Robert E. Flux
Partner, Incorporated
Sunshine Coast 

Let's Discuss!

Connect with a trusted Crowe MacKay advisor to discuss your specific situation by calling us toll-free at 1 (844) 522 7693, emailing [email protected]or by completing the form.
* Required