Investor Articles

Worth Considering?

You're married, retired and starting to apply for your Canada Pension Plan benefits. One of you may be receiving a significant private pension, while the other may not. Looking at your retirement income prospects, if you had the chance, would you take advantage of an opportunity to transfer taxable income into the hands of your lower-income earning spouse? You'd certainly consider it.

A useful tool provided by the federal government involves "assigning" benefits. Assignment of CPP benefits is something spouses do voluntarily to share their pension payments. This is not the same as "splitting", which involves dividing pension credits between spouses who have divorced or separated.

In our example above, it is possible, even likely the higher-income spouse may receive more than $56,968 per year, which is the point at which this spouse's Old Age Security begins to be "clawed back".

This would be a great opportunity to consider assigning CPP benefits between the two. Assignment would combine their benefits, and each would receive an equal half of the pension for the time they have been together. The effect would be to reduce the taxable income of the higher-income spouse, and effectively increase that of the lower-income spouse.

For the higher-income spouse, income taxes will have been reduced. The claw back of OAS benefits will also be less. The lower-income spouse will likely pay more income tax, caused by the increase in income, but may be offset somewhat by that ability to use more of the personal tax credit.

If one of them were to die, the pension amount the survivor would receive would return to the pre-assignment amount. Assignment of CPP can create significant tax savings, but given how simple the application is, even small savings can make the strategy worth considering. I don't know of too many seniors not interested in legally avoiding tax.

Gary Elliot, CFP, is with Partners in Planning Financial Services in Chilliwack and can be reached at (604) 792-8111.