Did you know?: Pension income splitting and your RRSP

Aug 16, 2019 | Christos Koutsavakis


The sixth entry in our Did you know? series addresses a key difference between withdrawals from an RRSP and a RRIF.

Imagine this scenario: nearing retirement, you want to begin taking money out of your RRSP in a tax efficient manner, ideally splitting the resultant income tax with your spouse.

In a nutshell: RRSP partial or full deregistration withdrawals are not eligible pension income. The solution is to convert your RRSP to a RRIF. RRIF withdrawals are eligible pension income and can be split with your spouse.

One way this could really matter: if your spouse does not have their own pension income, splitting your pension income could make your spouse eligible for the $2,000 federal pension income tax credit. This is in addition to the main benefit of shifting income from your higher tax bracket to your spouse’s lower tax bracket, lowering the family tax bill.

Important notes: if you have converted your RRSP to an annuity, the annuity payments would be considered eligible pension income – but such annuities are an uncommon practice. Also, in the case of a spousal RRSP in your name, withdrawals could be taxed in your spouse’s hands, subject to attribution rules, but would not be eligible pension income unless the RRSP is first converted to a RRIF. See our entry on Spousal-RRIFs and the minimum withdrawal.

See also: Pension income splitting and Income splitting and the attribution rules