Along with the very unpopular announcement about the taxation of Income Trusts, the federal government also announced that effective January 1, 2007, senior citizens would be able to split their pension income with their spouse. This has the potential to save significant taxes and should certainly be considered by all pensioners. Pensioners over the age of 65 will be able to split all pension income, including their RPP’s and RRIF’s. Pensioners under 65 will be able to split only their RPP income.

The tax savings could result from the following:

• Potential increase in the age credit due to lower net income,
• Potential reduction in tax rates applied to income previously taxed in one spouses return,
• Potential increases in non-refundable tax credits due to reduced net income, and/or
• Potential reduction in the Old Age Security clawback due to lower net income.

Careful calculations will be necessary each year to assure that the maximum advantage is taken from these new rules.

Please contact your accountant at Harvey, Lister & Webb Incorporated to discuss the possibilities.

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