Flash Retirement

Life as a Couple: Using the Tax System to Your Advantage

Now's the time to start considering strategies to minimize your tax bill when you retire.

The most popular strategy is contributing to the RRSP of the spouse most likely to have the lowest income. To take full advantage of this strategy, you'll need to understand the tax system (federal and provincial combined).

The system is "tiered", which means that you do not pay taxes on the first $12 069 you earn. If your income is $13 000, a combined tax rate of 12.53% applies only to the additional $931 in earnings, bringing your tax total to $116. 

The following table provides an approximation of the tax payable on a $41 000 in income in 2019.

(A) From (B) ToDifference
(B - A)
Combined Tax RateTaxes Owing
$0$12 069$12 069×0.00%=$0
$12 069$15 269 $3200×12.53%=$401
$15 269 $41 000$25 731×27.53%=$7084
APPROX. TOTAL: $7485

Knowing how this works, many people contribute to their spouses' RRSPs to even out their incomes, since two incomes of $20 500 are taxed less than a single income of $41 000. If you don't even out your RRSPs before you retire, it will be too late to take advantage of income splitting.

The new rules for pension income splitting in effect since the 2007 fiscal period let you save money by allocating up to 50% of your pension income to your spouse, under certain conditions. However, contributing to your spouse's RRSP is still a better option for saving money on taxes because it allows you to split 100% of your contributions.

Québec Pension Plan Sharing

Another strategy that can reduce your taxes is sharing your Québec Pension Plan (QPP) pension with your spouse.

To do so, you must apply to Retraite Québec and meet certain conditions on the date of application.

  • Whether you're a same-sex or opposite-sex couple, you must be married or in a civil union and not legally separated, or you must be in a common law relationship for at least three years
  • You must both be age 60 or over
  • You must both be receiving a QPP pension

    or

    One of you must be receiving a QPP pension and the other a Canada Pension Plan (CPP) pension

    or

    One of you must be receiving a QPP pension and the other must never have contributed

You should also know...

  • When pension sharing is calculated, the marriage, civil union, or common law union period and the 2 spouses' combined contribution periods are taken into account. That means one spouse will not necessarily receive half of the other spouse's pension. In addition, you can never give your spouse half of your pension without taking half of his or her pension.
  • For spouses married on January 1, 1966, or earlier, the pensions are split in 2 equal parts.
  • From a tax standpoint, the spouse with the highest income could benefit from pension sharing if the other spouse has a significantly lower taxable income.
  • If a spouse receives the maximum monthly benefit ($1154.58 at age 65 in 2019) and is subject to the maximum 53.305 % tax rate, pension sharing with the spouse who has no income could save up to $3692.69 per year, depending on the period of union considered (53.305 % × 50% × 12 × $1154.58). This is before the partial loss of tax credits for a dependent spouse.

Spouses cannot share...

  • QPP benefits other than pensions

The next time you simulate your retirement income, find out how QPP pension sharing would affect your personal finances. To do so, Flash Retirement recommends visiting Retraite Québec's Web site at www.retraitequebec.gouv.qc.ca.

This text is intended exclusively to provide general information on financial security at retirement. This information may not be appropriate to the reader who wishes to obtain particular information on one of the treated subjects and cannot be a guarantee for results. It is up to the reader to make pertinent expert advice requests. This information capsule does not bind partner providers of these information.

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