Pension Splitting - Do spousal RRSPs have a future now that tax rules have changed?

Advisor's Edge

2006-12-01

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HALLOWEEN 2006 may go down as the historic day on which Federal Finance Minister Jim Flaherty decided to impose a tax on income trusts, thus fi nally levelling the playing field between corporations and income trusts. But the day may also be remembered for another announcement-Canadian
seniors have the ability to income-split pensions, beginning in 2007.

Under Canadian tax law, each individual files his or her own tax return and is taxed on the income he or she earns on an individual basis. The United States, on the other hand, allows the filing of joint returns in which both spouses can choose to pool their incomes on the same return, with higher joint tax brackets for the couple than for a single.

Since we have a progressive tax system in Canada, the more you make, the higher your tax rate is. This has always been a source of concern for senior couples, where one spouse receives a pension while the other has very little income. The couple would be far better off and pay significantly less tax if the pension income, which is being used to support the couple jointly, could be split between both partners' tax returns.