What Income Can Be Split Between Spouses in Canada?
Wondering exactly which incomes you can share with your spouse? Short answer: mostly retirement and pension-related income such as registered pension income, RRIF withdrawals (subject to age rules), certain life annuity payments, and CPP pension sharing — but not typical employment wages. The CRA has a clear list of eligible pension income and rules.
Eligible income — the short shopping list
Generally, the following sources are commonly eligible for pension income splitting (subject to specific conditions):
- Registered pension plan (RPP) payments — workplace pensions and private pensions.
- RRIF payments — particularly for taxpayers aged 65 and over (there are age/eligibility details to check).
- Annuity payments from life annuities that qualify as eligible pension income.
- CPP sharing — the Canada Pension Plan allows pension sharing between spouses via Service Canada applications.
Important exclusions — what you CAN’T split
Many people assume any income can be split. That’s not true. Notably excluded are:
- Employment income (wages and salaries) — you can’t directly split a paycheque. For pre-retirement planning, spousal RRSPs are the tool to balance future incomes.
- Most business income and dividends — subject to TOSI rules and complex trust/corporation planning; sprinkling to family is heavily restricted.
- Investment income such as interest or dividends is generally taxed to the person who owns the asset unless shifted via legal structures (which have tax consequences).
Special cases & workarounds
There are legal planning strategies to get household income closer to parity without breaking rules: spousal RRSP contributions (before retirement), annuitizing part of a nest egg in the spouse’s name, or through careful timing of RRIF withdrawals. These are best tested in a model — like the Retirementize calculator — to show whether the tax and benefit tradeoffs are worth it. For advanced corporate situations, TOSI rules make such planning complex.
Example scenarios
Scenario A — Simple retirement couple: Alice (retired teacher) receives $30,000 in pension income from an RPP; Ben receives $10,000 from part-time work. If Alice splits $15,000 to Ben, the couple reduces marginal tax exposure and may recover lost benefits such as age credits.
Scenario B — Business owner: Carlos pays dividends to a spouse who does not materially contribute to the business. Under TOSI, those dividends may be taxed at the highest rate unless specific exclusions apply. Always consult CRA guidance and a tax pro.
How to confirm eligibility for a given payment
When in doubt, check CRA’s “eligible pension income” guidance and the pension income splitting page — they provide lists and examples and are the authoritative references for tax filing. If the income is RRIF or registered pension income, it’s likely covered; if it’s wages or most dividends, it usually isn’t.
Closing note
Understanding exactly which income can be split is essential to effective retirement tax planning. Use Retirementize to model eligible vs. ineligible income, and link your strategy to articles like RRSP meltdown or retirement withdrawal calculator for fuller planning.