When Should I Use Income Splitting in Canada?
by Mark Briggs - September 2025
Income splitting can be an important part of Canadian retirement tax planning, but the best time to use it depends on your income sources, ages, tax brackets, and eligibility for income-tested benefits.
Pension income splitting and CPP pension sharing are also different strategies. Pension income splitting is a joint tax election with the Canada Revenue Agency (CRA), while CPP pension sharing is administered separately by Service Canada.
In many cases, the goal is to distribute taxable retirement income more evenly between spouses or common-law partners. This can reduce combined income tax, but the result depends on the couple's complete financial situation.
When Should You Consider Income Splitting?
There is no single age or retirement milestone when every couple should begin income splitting. Instead, look for situations where the difference between the spouses' taxable incomes becomes significant.
- When one spouse begins receiving substantial eligible pension income: A pension, annuity, or qualifying RRIF income may create a large difference in taxable income between spouses.
- When one spouse has substantially lower taxable income: Allocating eligible pension income to the lower-income spouse may result in a more balanced distribution of taxable income.
- When OAS recovery tax becomes a concern: Reducing one spouse's net income through an eligible pension income-splitting election may affect that spouse's OAS recovery tax.
- When retirement income changes significantly: The appropriate income-splitting strategy can change when RRIF withdrawals, pensions, CPP, OAS, investment income, or other sources begin.
Income Splitting Is a Year-by-Year Decision
One of the most useful features of Canadian pension income splitting is that it is not a permanent decision.
Eligible spouses or common-law partners can make a joint election for a particular tax year. Up to 50% of eligible pension income can generally be allocated to the other spouse or common-law partner.
The percentage does not have to remain the same from year to year. For example, a couple could split 30% of eligible pension income in one year and choose a different amount in another year, depending on their circumstances.
This makes it worthwhile to revisit the strategy annually rather than assuming that the same percentage will always produce the best result.
When One Spouse Retires Before the Other
A common situation occurs when one spouse retires several years before the other.
The retired spouse may begin receiving a pension or drawing from a RRIF while the working spouse continues earning employment income. This can create a large difference in taxable income.
If the retirement income qualifies for pension income splitting, allocating some of that income to the other spouse may change the couple's combined tax liability.
However, the calculation should include the working spouse's employment income, deductions, credits, government benefits, and other sources of income rather than looking at the pension in isolation.
When OAS Recovery Tax Is a Concern
Old Age Security (OAS) includes an income-tested recovery tax. When an individual's net world income exceeds the applicable threshold, part of their OAS may have to be repaid.
Pension income splitting can sometimes change the income of each spouse enough to affect the amount of OAS recovery tax owed.
For example, if one spouse has significantly higher taxable retirement income than the other, allocating eligible pension income to the lower-income spouse may reduce the higher-income spouse's net income.
However, it is important to model the entire household result. Moving income to the other spouse can increase that spouse's income and potentially affect their own benefits, credits, or taxes.
OAS recovery thresholds also change over time, so use the threshold applicable to the specific tax year being analyzed.
When One Spouse Has Very Little Taxable Income
Income splitting can be particularly relevant when one spouse has substantially less taxable income than the other.
Canada's tax system applies progressive rates, so distributing eligible pension income between spouses can sometimes reduce the amount of income taxed at higher rates.
This does not mean that every couple should automatically split the maximum amount. The optimal amount depends on the tax brackets and benefits affecting both spouses.
When You Start Taking RRIF Income
RRIF withdrawals can become an important part of retirement income planning because registered accounts must eventually produce taxable withdrawals.
Certain RRIF income can qualify for pension income splitting when the transferring spouse meets the applicable age requirements. In particular, the CRA rules generally allow qualifying RRIF income to be eligible when the transferring spouse is 65 or older at the end of the year, subject to the detailed rules.
This means the years surrounding age 65 can be particularly important when designing a retirement-income strategy.
Rather than waiting until the tax return is prepared, consider projecting your income several years in advance. This can help identify years where income splitting could have a meaningful effect.
CPP Sharing Is Different
CPP retirement pensions cannot simply be transferred between spouses using the CRA pension income splitting election.
Instead, eligible couples can apply through Service Canada to share CPP retirement pensions.
To qualify for CPP pension sharing, the couple generally must be living together as spouses or common-law partners, and either person must be receiving or have applied for a CPP retirement pension.
If both spouses contributed to CPP, they may be able to share both pensions. The combined amount of the two CPP retirement pensions does not increase as a result of sharing; instead, the eligible pension amounts are allocated between the spouses according to the applicable rules.
CPP pension sharing starts after Service Canada approves the application and cannot be backdated.
When Income Splitting May Provide Little Benefit
Income splitting is not automatically beneficial.
If both spouses already have similar taxable incomes and are in similar marginal tax brackets, moving eligible pension income between them may produce little difference in their combined tax.
There can also be situations where increasing one spouse's income affects a tax credit, benefit, or other income-tested program.
For this reason, the right question is not simply: "Can we split our income?"
A better question is: "What happens to our total household taxes and benefits if we split different amounts?"
Strategy 1 — Staggered Retirement Dates
When spouses retire at different times, their taxable incomes can vary considerably from year to year.
The spouse who retires first may initially have pension income, investment income, or registered-account withdrawals while the other spouse continues working.
Once eligible pension income becomes available, income splitting can be considered as one part of the broader strategy for balancing taxable income between the spouses.
The calculation should also consider whether either spouse is receiving CPP or OAS, because those benefits have separate rules.
Strategy 2 — Plan RRIF Withdrawals Together
Couples should look at both spouses' registered accounts when determining how much income they expect to have in future years.
Taking large withdrawals from one spouse's RRIF while leaving the other spouse's retirement accounts largely untouched may create unnecessary differences in taxable income.
Pension income splitting may help after the applicable eligibility requirements are met, but withdrawals themselves should still be planned carefully.
Remember that RRIF minimum withdrawals are generally required based on the RRIF holder's age and cannot simply be transferred to the other spouse through a pension splitting election.
Strategy 3 — Consider Spousal RRSPs Before Retirement
Income splitting can also be considered before retirement.
A spousal RRSP allows the higher-income spouse to contribute to an RRSP in the lower-income spouse's name, subject to the applicable contribution rules.
The future withdrawals belong to the spouse who owns the RRSP. Attribution rules can apply if withdrawals occur within the applicable period following a contribution, so spousal RRSP planning needs to be done carefully.
Spousal RRSPs are therefore a different strategy from pension income splitting, but both can form part of a longer-term retirement income plan.
Worked Example: Why Timing Matters
Suppose Sam is 66 and expects $50,000 of eligible pension income, while Lee is 62 and has only $5,000 of other taxable income.
Sam could potentially elect to allocate up to 50% of eligible pension income to Lee, subject to the CRA's rules.
In this simplified example, a $25,000 allocation would reduce the pension income reported by Sam and increase Lee's reported income by the same amount.
Whether this actually reduces the couple's combined tax depends on their complete circumstances. It could also affect income-tested benefits and credits, so the result should be calculated rather than assumed.
How to Decide Whether to Split Now or Later
A useful way to evaluate income splitting is to look ahead several years rather than considering only the current tax return.
- Estimate each spouse's taxable income. Include pensions, RRIF withdrawals, CPP, OAS, employment income, investment income, and other relevant sources.
- Identify eligible income. Separate income that qualifies for CRA pension income splitting from income that uses a different mechanism, such as CPP pension sharing.
- Test different splitting percentages. You can generally allocate anywhere from none to 50% of eligible pension income, depending on your circumstances.
- Check OAS recovery tax. Determine whether changing either spouse's income affects OAS recovery tax.
- Check other benefits and credits. Look at federal and provincial programs that depend on individual income.
- Repeat the analysis for future years. The optimal strategy can change as each spouse retires, begins CPP or OAS, withdraws from registered accounts, or experiences other income changes.
Don't Confuse Income Splitting With CPP Credit Splitting
There is another CPP concept called credit splitting, but it applies primarily to divorced or separated spouses or common-law partners.
CPP credit splitting divides CPP contribution credits accumulated while a couple lived together. It is different from CPP pension sharing between a current couple and different again from CRA pension income splitting.
Keeping these three concepts separate is important when planning retirement income:
- CRA pension income splitting — a tax election for eligible pension income.
- CPP pension sharing — sharing CPP retirement pensions between eligible current spouses or common-law partners.
- CPP credit splitting — division of CPP contribution credits following qualifying divorce or separation.
How Retirementize Can Help
Income splitting is most useful when it is evaluated alongside the rest of your retirement-income strategy.
Retirementize allows you to model retirement income, pensions, government benefits, investment accounts, taxes, and different withdrawal scenarios so you can see how changes to your retirement plan can affect your projected results.
You can use those projections to identify years where income differences between spouses may warrant a closer look at pension splitting or CPP pension sharing.
Tax legislation and benefit thresholds can change, so use current CRA and Service Canada information when making an actual tax election.
Final Thoughts
There is no universal "best time" to use income splitting in Canada. The opportunity can arise when one spouse retires before the other, when pension or RRIF income creates a large difference between spouses, or when OAS recovery tax becomes a consideration.
The important point is that pension income splitting is a year-by-year decision. The amount that makes sense in one year may not make sense in the next.
CPP pension sharing should also be considered separately because it operates under different eligibility and application rules.
By projecting both spouses' income several years ahead and testing different scenarios, you can see where income splitting may affect your combined taxes and retirement benefits.
