It’s your Money – Keep It!
Two tax-saving strategies
1. Income splitting
2. Pension income tax credit
Income Splitting
Now available for income splitting
Married & common law couples
Spouses can split retirement income
Save thousands in taxes each year
Have up to 50% eligible income transferred to lower income spouse
Eligible
Life annuity payments from a Registered Pension Plan (RPP)
Annuity payments from a Registered Retirement Savings Plan (RRSP)
Withdrawals from a Registered Retirement Income Fund (RRIF)
Annuity and installment payments out of a Deferred Profit Sharing Plan (DPSP)
Eligible, continued
Income from some foreign pension arrangements and U.S. Individual Retirement Accounts (IRAs)
The interest element of a non-registered annuity contract (prescribed and non-prescribed)
Accrued (interest) income from a non-registered deferred annuity contract such as a Guaranteed Investment Contract (GIC) provided by an insurance company
Not eligible
Old Age Security (OAS)
Canada / Quebec Pension Plan (CPP / QPP)
Lump-sum death benefits
Retiring allowances
Not eligible, continued
Salary deferral arrangements, retirement compensation arrangements, employee benefit plans and employee trust plans
Gains resulting from a policy loan or disposition
Capital gains, dividends and interest
Income splitting options
1. Eligible income
2. Canada/Quebec Pension Plans
3. Spousal RRSPs
Eligible income
Split up to 50%
Optimum transfer may be less than 50%
Canada/Quebec Pension Plans
Spouses of at least 60 years of age can share up to 50% of benefits earned while living together
Spousal RRSPs
Income splitting at any age
Not restricted to 50%
Younger spouse – delayed until the year after spouse reaches age 71
Example 1
No Splitting With SplittingDifference
John Marie John Marie
Company Pension
$85,000 - $42,500 $42,500 -
RRIF/Spousal RRIF
$19,000 $10,000 $13,892 $15,108 -
CPP $10,365 - $10,365 - -
OAS $5,903 $5,903 $5,903 $5,903 -
Gross income $120,268 $15,903 $72,770 $63,511 -
Tax1 ($35,460) ($1,138) ($16,668) ($13,770) -
OAS clawback ($5,903) - ($1,372) - -
Age credit2 - $1,034 - $45 -
After-tax income
$78,905 $15,799 $54,620 $49,786 Increase $9,702
1 Taxes owing are calculated using graduated rates for the province of British Columbia taking into account the Basic Personal Exemption and the Pension Income Credit ($367) if applicable. Generally others will also apply.2 The Age Credit is $1,034 less clawbacks.
For illustrative purposes only.
Example 2
No Splitting With SplittingDifference
Jim Elaine Jim Elaine
Company Pension
$85,000 - $42,500 $42,5003 -
RRIF/Spousal RRIF
$19,000 $10,000 $9,500 $19,500 -
CPP $10,365 - $5,183 $5,182 -
OAS $5,903 - $5,903 - -
Gross income $120,268 $10,000 $63,086 $67,182 -
Tax1 ($35,460) ($222) ($13,896) ($14,895) -
OAS clawback ($5,903) - - - -
Age credit2 - - $311 - -
After-tax income
$78,905 $9,778 $49,501 $52,287 Increase $13,106
1 Taxes owing are calculated using graduated rates for the province of British Columbia taking into account the Basic Personal Exemption and the Pension Income Credit ($367) if applicable. Generally others will also apply.2 The Age Credit is $1,034 less clawbacks.3 Even though under age 65, Elaine now has a Pension Income Credit on the transferred company pension income.
For illustrative purposes only.
The Pension Income Tax Credit
Reduce taxes even more
Even at age 65 or older
Available even without income from RRIF or private pension
Pension income tax credit
Deduct a tax credit equal to 15.5% on first $2,000
Up to $310 in federal tax savings Plus provincial tax credits
Non-refundable
Eligible
Life annuity payments from a Registered Pension Plan (RPP)
Annuity payments from a Registered Retirement Savings Plan (RRSP)
Withdrawals from a Registered Retirement Income Fund (RRIF)
Annuity and installment payments out of a Deferred Profit Sharing Plan (DPSP)
Eligible, continued
Income from some foreign pension arrangements and U.S. Individual Retirement Accounts (IRAs)
The interest element of a non-registered annuity contract (prescribed and non-prescribed)
Accrued (interest) income from a non-registered deferred annuity contract such as a Guaranteed Investment Contract (GIC) provided by an insurance company
Not eligible
Old Age Security (OAS)
Canada / Quebec Pension Plan (CPP / QPP)
Lump-sum death benefits
Retiring allowances
Not eligible, continued
Salary deferral arrangements, retirement compensation arrangements, employee benefit plans and employee trust plans
Gains resulting from a policy loan or disposition
Capital gains, dividends and interest
Creating the income from an insurance GIC
Annual Interest Rate
Non-Registered Savings Required
4% $50,000
5% $40,000
6% $33,333
7% $28,570
8% $25,000
Income splitting where both spouses are age 65 or more
Invest double the amount of non-registered savings
Make an election on tax returns to each claim $2,000
Maximize tax benefits of the $2,000 Double your tax credits
Transferring unused credits to a spouse
At least age 65
Have eligible income but unable to use full credit
Transfer unused portion to spouse
Receiving spouse can claim at any age No eligible income required
Speak to your advisor
Income splitting and pension income tax credit Two ways to
minimize tax during retirement
Maximize your retirement income
Important notes
The commentary in this presentation is for general information only and should not be considered investment or tax service to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.
Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canada’s largest integrated financial services providers, Manulife Investments offers a variety of products and services including: segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts.
Manulife and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.