The off-return implications of pension income splitting can vary significantly by province. Here's some feedback received from our readers.
Dan Reynen of Dan Reynen Business Services in Campbell River BC writes:
In BC the Per Diem rate charged to people in Care (Senior's Housing etc) is based on their Total Income from the previous year. This means their 2009 Per Diem rate will be based on their 2007 Income Tax Return. The government allows pensioners to file a form declaring they are separated due to medical reasons. They then only use the person in care's income in determining how much they are charged at the home. Splitting pension in this case can seriously affect how much is charged to the person in care. If the person in care is not the pensioner splitting the pension will increase the Per Diem. The Per Diem increase can be far more than the tax saved. Check carefully. You could have a situation where they are already paying the maximum Per Diem anyway so the splitting of pensions won't affect them.
The two other items to be taken into account from this are, will one or the other be going into care in the near future and which one first. You really need to get to know your elderly clients well before deciding the best way to split the pension income. You could try to use your crystal ball. Since this does not actually affect them until two years (1.5 years) down the road.
Peter Coles, Tax Research and Training Specialist of H&R Block writes:
Ö it appears that the decision to split pension income may sometimes involve more than the tax considerations. For example, in Saskatchewan, nursing home fees could be adversely affected by an increase in the Line 150 amount of the pension transferee. The Alberta Seniors benefit could also be affected (although this would only affect low-income seniors who probably would not have much pension income to split).
By the way, Nova Scotia Pharmacare works the same way as Manitoba Pharmacare and could be adversely affected by an increase in the pension transferee's Line 150 amount. We are hoping that the various provincial governments will fix their regulations to take pension income splitting into account. Manitoba Health has already advised us that they are currently reviewing pension income splitting provisions. However, it might be dangerous to assume that all provincial governments will follow through.
It is also worth noting that where spouses or common-law partners are involuntarily separated (for example, where one of them is in a nursing home), the Guaranteed Income Supplement (GIS) that each receives will be recalculated based on their individual income. Transferring pension income in this situation could therefore adversely affect the GIS entitlement of the pension transferee.
Ö there could be other government programs affected by pension income splitting that we are unaware of.
Our policy is to ask our clients whether they are receiving benefits under any federal or provincial income-dependent programs. If they are, then we check them out to see if pension income splitting could have any adverse consequences.