Forgotten Dollars Part 11
Pension Splitting and the Multigenerational Home Credit
Hi there, Welcome back to “Your Canadian Senior Moment”!
As we continue our series on overlooked benefits, we’re focusing on two important tax benefits that can provide significant savings for Canadian couples and families. We’ll look at how pension income splitting can lower your tax bill and how a new tax credit can help with the cost of creating a multigenerational home.
Pension Income Splitting
Pension income splitting is a simple yet powerful tax strategy for Canadian couples. It allows a higher-income spouse or common-law partner to transfer up to 50% of their “eligible pension income” to their lower-income partner. This can significantly reduce the couple’s overall tax bill, especially if one partner is in a much lower tax bracket.
Who is Eligible? To split your pension income, both you and your spouse or common-law partner must:
- Be Canadian residents.
- Not be living separately and apart because of a breakdown in your relationship.
- Be receiving eligible pension income.
What is “Eligible Pension Income”? For individuals 65 or older, this includes income from a Registered Retirement Income Fund (RRIF) and lifetime annuity payments from a Registered Pension Plan (RPP). Income from government programs like the Old Age Security (OAS) pension and the Canada Pension Plan (CPP) is not eligible for splitting.
How to Split Your Pension: You do not actually have to transfer any money. Each year when you file your income tax return, you and your partner will jointly file Form T1032, Joint Election to Split Pension Income, to allocate the pension income. The election to split pension income is made one year at a time and can be changed each tax year.
The Multigenerational Home Renovation Tax Credit (MHRTC)
The Multigenerational Home Renovation Tax Credit is a new federal refundable tax credit that helps families create a secondary living unit in their home for a senior relative. The goal is to support multigenerational living and reduce housing costs.
What Renovations Qualify? The renovations must create a self-contained secondary unit with a private entrance, a kitchen, a bathroom, and a sleeping area. Some examples of qualifying expenses include:
- The cost of labour and professional services (e.g., plumbers, electricians).
- Building materials, fixtures, and equipment rentals.
- Permits and architectural drawings.
Who is Eligible to Claim? The renovation must be for a “qualifying individual,” which is a relative who is 65 years of age or older or is eligible for the disability tax credit. You can claim a credit of 15% on up to $50,000 in eligible expenses, for a maximum credit of $7,500.
Your Turn to Claim!
Pension income splitting is a valuable tax strategy that could save you and your partner thousands of dollars. And if you’re thinking of creating a secondary suite for a senior relative, the Multigenerational Home Renovation Tax Credit is a great way to help with the costs. Take a moment to talk to a tax professional to see if you can take advantage of these benefits.
**Your turn:** Hit reply and share your thoughts! We read every response and often feature reader stories in future articles.
Next week, in our ongoing series, we’ll dive into a new topic: provincial programs and other savings.
(Please remember: We are not financial or medical professionals, and the information above is for educational purposes only. It does not constitute specific financial advice. For personalized guidance on your finances, please consult a qualified professional.)
Warmly,
Bill and Marilyn
Founders of Canadian Senior Moment
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