Tax Tips

• Tax Tips Archive

Pension Income Can Be Split in Year of Death

Subject: Pension Income Number: 08-11 Date: 11/28/2008

Eligible pension income relating to the portion of the year in which both spouses were alive can be split

Section 60.03 of the Income Tax Act provides for the splitting of qualifying pension income between spouses for 2007 and subsequent years.

For the income-splitting provisions to apply, both spouses must be pensioners for the portion of the year in question (i.e., receive eligible pension income in the taxation year and reside in Canada on December 31) and both spouses must be eligible pension transferees (essentially all spouses, including common law).

On the death of a spouse, the surviving spouse is no longer considered married to the deceased. In a recent technical interpretation (2008-0275731E5), the CRA confirmed that, although the spouses are not considered to be married at the end of the year of death, that part of the eligible pension income relating to the portion of the year in which both spouses were alive can be split.

It is the CRA’s view that the calculation of the maximum amount that can be transferred is equal to 50% of the eligible pension income, pro-rated for the number of months (including any part month) that both spouses were alive, divided by the total number of months in the year in which the surviving spouse was alive. For example, if a spouse died in February, the maximum amount of the surviving spouse’s pension income that could be split and included on the deceased’s terminal return would be 50% of the surviving spouse’s eligible pension income times 2/12. Form T1032 will still have to be filed to permit the election to transfer the pension income. Presumably, that election can be signed by the deceased’s legal representative.

It is also the CRA’s view that the split pension amount cannot be included on the deceased spouse’s “rights or things” return.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.