Can my spouse and I split pension income to reduce our Ontario taxes?

Yes — Canadian tax law allows eligible pension income to be split between spouses or common-law partners for tax purposes. Up to 50% of eligible pension income can be allocated to the lower-income spouse, which reduces the higher earner's taxable income and increases the lower earner's. Because both federal and Ontario provincial tax are calculated on each person's income, splitting can reduce the combined household tax bill if there is a meaningful income difference between partners.

Eligible pension income for income splitting generally includes annuity payments from a registered pension plan (RPP), RRIF withdrawals (if the recipient is 65 or older), life annuity payments from an RPP, and certain other amounts. CPP and OAS payments are not eligible for pension income splitting (though CPP has its own assignment rules). The split is purely for tax purposes — no money actually moves between accounts. Both spouses must file and jointly elect the split on Form T1032.

The receiving spouse also gains access to the pension income tax credit on the allocated amount, which can further reduce their provincial and federal tax. Income splitting must be re-elected every year — it is not automatic. A tax professional can model whether splitting in a given year produces a net benefit, since it affects benefit eligibility and other income-tested programs.