Pension Income Splitting has allowed many couples to reduce their combined income taxes but people should be aware that this may affect their entitlement to Old Age Security [OAS]. Essentially, the pension splitting option allows the pensioner to allocate a portion of his/her pension to the other spouse, which may increase that spouse’s income to more than $66,335 at which point, that spouse’s OAS will be reduced in the following year.
This impact of pension splitting on the non-pensioner spouse affects other income tested programs including federal and provincial tax credits and surtaxes, provincial health premiums and in one reported case, government subsidy for nursing home care.
Some but not all of the tax preparation software have addressed this problem and when confronted with this limitation, one provider said it would take the OAS clawback into account in next year’s software, adding that “that inexpensive tax software cannot replace tax professionals with years of experience”. Hear, hear!
For those who have already filed or need to correct a previous year’s filing, there is a 3 –year time limit to do so.