With tax season upon us once again, it is time to take a look at some of the changes regarding personal income tax filings. One area that prompts many questions is the pension splitting rules which were introduced for the 2007 tax year. Let's review some of the rules for splitting pensions:
Claimants Over Age 65. Pension income includes amounts included in the taxpayer's income for the year that are:
Claimants Under Age 65: Qualified pension income includes amounts included in the taxpayer's income for the year that are:
Excluded: Specifically excluded from the definitions of pension and qualified pension income are:
Claim the pension income amount on line 314 of Schedule 1 Federal Tax. No separate form is provided by CRA for calculating the Pension Income Amount but an area is provided on the Federal Worksheet to calculate the amount.
If the taxpayer has a spouse or common-law partner and the taxpayer's income is low enough that the pension income amount is of no benefit, then the unused amount may be transferred to the spouse or common-law partner using Schedule 2 Federal Amounts Transferred From Your Spouse or Common-law Partner.
As the provincial pension amount varies by province, the transfer of the provincial amount will differ from the federal amount and must be performed on a special Schedule 2 for the province of residence. In some provinces, the Pension Income Amount is indexed.
Note: As 2007 was the first year of the provision and many software optimizations were not perfected or available on time, it is recommended that last year's choices be reviewed. T1ADJ adjustment requests will be allowed on the election.