# Income splitting question



## xtreme_canadian (Sep 28, 2015)

Hi everyone,

New to the forum! Here's a little background of my situation:

I just transferred to a new job (with a new employer). I had 10 years of pensionable service with my previous employer. My prior employer has to pay me upwards of $60,000 from my pension as cash (due to their rules). The rest of the money is locked in. I was told all of this $60,000 cash will be taxable. It's quite frustrating as I thought the entire amount was tax sheltered. What this means is that this lump sum $60k deposit will jump me into a higher tax bracket, thus my net gain is much less. Unfortuantely I cannot defer receiving the money until next year (when I would be in a lower tax bracket).

Question - Is there anyway I can take this lump sum cash and claim it on my wife's taxes (income split) to save on taxes and increase the overall net amount? She's in a much lower tax bracket than I am. 

I've read I could give her a loan and charge interest, but a contract must be in place. No websites really explain how this works. The kicker is that I would like to utilize the funds in the next year for a house purchase. 

Thoughts on what my options are?

Thanks for your help and time!


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## AltaRed (Jun 8, 2009)

I am not knowledgeable of the income splitting rules for families introduced in the current tax year by the Conservatives but that is all you can do, short of contributing to a spousal RRSP assuming you have the RRSP room. The bummer is she cannot withdraw it for 3 years without it being attributable back to you. 

A spousal loan is intended for investment purposes. Go to the CRA site and search for an IT bulletin explaining this, or simply Google 'spousal loan agreement canada' and you will get tons of hits.

Added: The Libs and NDP said they are going to kill that option so it may not be available for the 2015 tax year. Also, it only applies to families where there is at least one dependent child under 18.


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## OnlyMyOpinion (Sep 1, 2013)

I'm not a expert on this. You should check whether or not the taxable amount can be transferred to an RRSP. I understand that it can be in some circumstances. 
For example (not necessarily applicable to your case):
_You may take this refund as a taxable lump sum payment, or you may be able to transfer all or a portion of these excess contributions directly to your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) on a tax sheltered basis. Keep in mind that any cash payments from a pension plan are taxable. _
_If your pension plan allowed you to make AVCs to your plan, you are entitled to a refund of these contributions, plus accrued interest or investment income. You may take this refund as a taxable lump sum, or you may be able to transfer all or a portion to your RRSP or RRIF, as noted above_
https://www.fsco.gov.on.ca/en/pensions/pension-plan-guide/pages/LE-Events-that-May-Affect-Your-Pension.html


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## asterbin5 (Oct 1, 2015)

Since 2007, Canadian spouses or common-law partners have been allowed to split the pension income one of the spouse receives between the two spouses. No funds are transferred, the split occurs only on paper.

As we all know, in Canada, people who make more money pay more income tax. This little-known strategy allows the spouse who has the highest income to lower his tax payable by sharing up to 50 % of his pension income with his spouse.


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## stardancer (Apr 26, 2009)

asterbin5 said:


> Since 2007, Canadian spouses or common-law partners have been allowed to split the pension income one of the spouse receives between the two spouses. No funds are transferred, the split occurs only on paper.
> 
> As we all know, in Canada, people who make more money pay more income tax. This little-known strategy allows the spouse who has the highest income to lower his tax payable by sharing up to 50 % of his pension income with his spouse.


This only applies to an actual pension, not a lump sum as the OP was describing. His best bet is to transfer to an RRSP if he has the room.


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## OptsyEagle (Nov 29, 2009)

No. You are beat, unless you have PERSONAL RRSP contribution room to shelter these amounts. 

Loans to spouses only income split on the annual interest earned, not the capital loaned. Spousal RRSPs will only help you when it comes time to take the money out of the RRSP and pension splitting has nothing to do with your problem. All those suggestions may be of some benefit but they will not help you avoid the tax on the deregistration of your pension money upon changing employers.


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## plaussie (Oct 9, 2015)

When I 'retired' from one JOB (that I endured for longer than 10 years) I did in fact simply have the lump sum cash (pension) potion immediately rolled into an RRSP. The money did NOT touch my hands per se it was directly transferred from the company to the bank I was dealing with at the time. It did not trigger a taxable event.


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## Karen (Jul 24, 2010)

When I retired from the federal public service in 2006, I received severance pay of about $19,000, $13,000 of which was eligible to be deposited to my RRSP. I had maxed out my RRSP, but I was told that this money could be added to my RRSP over and above the regular limits, so I opted to do that. When I received the cheque from the government, it was for the whole amount of $19,000, and I was worried that it wouldn't be eligible for my RRSP because I had understood that it had to be a direct transfer and couldn't go through my hands. But that wasn't the case. I phoned my Human Resources Department, and they said to just go ahead and deposit it to my RRSP and that there wouldn't be any problem. I did that and they were right; I got the tax write-off and nobody questioned it. That seems to contradict all the rules, but that's what happened.


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## domelight (Oct 12, 2012)

The OP needs to ask their employer is any of the retiring allowance is a "eligible retiring allowance" This will apply to years worked before 1996.
That being said "Karen" has described the circumstances correctly the employee can never touch the money the employer must look after this transaction for the amount to be transferred to an RRSP without affecting RRSP room available.
In Karen's situation her employer has done some fancy footwork with the paperwork after the fact. the fact that she received the 19,000 and bought the RRSP's herself is exactly what you don't want to do.
In conclusion the best options the OP has is the "eligible retiring allowance" and making use of any further RRSP room available. As previous replies have stated there are no "splitting" arrangements for this situation.


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## jambo411 (Apr 6, 2009)

Any extra room in your RRSP is only for service prior to 1996. You could roll over $2,000 per year of service. Any excess could be contributed to your RRSP if you had the room. The pertinent info follows.

A retiring allowance may be paid over one or more years. The amounts paid in any particular year may be transferred to an RRSP or an RPP. The amounts transferred cannot exceed the employee's eligible portion of the retiring allowance minus the eligible portion transferred by you in a prior year.

The amount that is eligible for transfer under section 60(j.1) of the Income Tax Act is limited to:

* $2,000 for each year or part of a year before 1996 that the employee or former employee worked for you (or a person related to you); plus
* $1,500 for each year or part of a year before 1989 of that employment in which none of your contributions to the RPP or deferred profit sharing plan (DPSP) were vested in the employee's name when you paid the retiring allowance. To determine the equivalent number of years of vesting, refer to the terms of the particular plan. The number can be a fraction.

You can only transfer the eligible portion of the retiring allowance under paragraph 60(j.1) of the Act to the employee's own RRSP or to an RPP under which your employee is the annuitant. The eligible portion cannot be directly transferred to a spousal or common-law partner's RRSP under paragraph 60(j.1) of the Act. If you transfer the amount to an RPP, you may have to report a pension.


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