BMO Nesbitt Burns
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Proposed Pension Income Splitting is Good News for Seniors
surprise Tax Fairness Plan announcement on October 31st included a
couple of good news items for seniors. The two measures that were
proposed are an increase to the age credit amount and pension income
splitting for senior couples. Although there are not many details yet
available, here is a summary of what we know so far.
Age Credit Amount
age credit is set to increase by $1,000 to $5,066 and this increase is
slated to take effect retroactively to January 1, 2006. Since the age
credit is income tested, with the $1,000 enhancement, the credit will be
completely eliminated when net income reaches $64,043 (previously
$57,377). For low and moderate income seniors, this could mean a federal
tax savings of $155 each year.
Pension Income Splitting for Seniors
other proposed measure that could impact millions of seniors and baby
boomers nearing retirement is allowing pension income splitting between
couples beginning in 2007. Under the current tax system, pension income
splitting is limited to CPP/QPP retirement benefits and the use of
Individuals who receive income that would
normally qualify for the pension income credit will be able to split up
to 50% of this income with their lower income spouse.
individuals who are 65 years of age or older, this would include defined
benefit pension plan payments, lifetime annuities from registered plans
and RRIF payments.
For individuals who are under the age of 65,
only defined benefit pension payments and lifetime annuity payments from
registered plans would qualify for pension income splitting.
the pension income splitting mechanism will increase the lower spouse’s
income, it could result in the overall lowering of a couple’s annual tax
bill. Each year the couple must jointly agree on the allocation of the
pension income on their tax returns.
in mind that these are only proposed measures at this time. We will
keep you up to date on the changes as more information becomes