Married or common-law couples in an ongoing relationship may voluntarily share their CPP retirement pensions to help reduce their tax bill. Currently, the government allows you to share your CPP if you meet certain conditions. Here, we will outline the six steps in order to participate in pension sharing.
In addition to allowing your spouse or common-law partner to share in your pension benefits, you can also realize certain tax savings. Pension sharing really only produces a tax savings if one spouse is receiving more CPP and is in a higher tax bracket than the other spouse. Be sure to consult your tax accountant or financial advisor to learn more about the benefits of pension sharing.
Below are the six steps you can take to set up pension sharing for your CPP. Be sure to follow each step:
In order to qualify for pension sharing, you have to make sure that you meet the following conditions:
· You are currently living with your legal spouse or common-law partner AND
· Either you or your legal spouse or common-law partner is currently receiving, or have applied for, a retirement pension
· You must have lived with your spouse during the time you, your spouse or both of you contributed to CPP
The current definition of a common-law partner is someone whom you share a living space with and have had a conjugal relationship for at least 1 year. A common-law partner can be either someone of the same sex or the opposite sex as you.
To establish your common-law partner for the CPP pension sharing program, you will need to complete the following forms:
· The Statutory Declaration of Common-law Union form – dual signatures (ISP 3004 CPP), or
· The Statutory Declaration of Common-law Union form – single signature (ISP 3104 CPP)
You will not be able to apply for pension sharing if you and your spouse or common-law partner have been voluntarily separated at the time of application. If you happen to be come separated after pension sharing approval, then the following will apply:
o The month in which there is a legal separation
o The 12th month after both parties began to live separately
You can share your pension in one of two ways:
· If only one of you contributed to the CPP or QPP, then you will both receive one pension
· If both of you contributed to the CPP or QPP, then you will both receive a share of both pensions
The amount that you will be able to share will depend on how long you have been cohabitating with your spouse or your common-law partner. To learn more about your
current pension status and benefit amount, visit the Statement of Contributions where you can view your account.
· Any and all CPP post-retirement benefits cannot be considered for pension sharing
· Pension sharing and the Canada RevenueAgency’s pension income splitting are entirely different programs
· To learn more about pension sharing for QPP, view the Retraite Québec website
The Pension sharing plan will start as soon as your application is approved. Please note that a pension-sharing arrangement cannot be backdated.
Any single party can apply for the pension sharing application. That can be you or your spouse or common-law partner. All names on the application will be eligible for pension sharing if the application is approved.
You can apply for pension sharing if you are applying for or are already receiving a CPP retirement pension.
There is a two-step process when applying online:
It is recommended that you apply online for faster processing. However, you can also apply using a paper form:
· Complete the Application for CPP Pension Sharing of Retirement Pension(s) (ISP1002)
· Include certified true copies of the required documentation, and
· Mail the form or drop it off at a Service Canada Office
You will be contacted after your application has been received. You will also receive a notice when your application is either accepted or rejected.
Pension sharing stops in whichever month occurs first:
· If you or your spouse or common-law partner cancel pension sharing, then the plan will stop the next month
· The month you divorce or the 12th month after you and your spouse separate
· The month the spouse or common-law partner doesn’t pay into the CPP (or QPP) begins contributing
· The month one of you dies
To cancel a pension-sharing arrangement:
· Complete the Cancellation of Pension Sharing form (ISP1014)
· Print and sign the form
· Mail it to the Service Canada Office or drop it off at your nearest Service Office Canada location
You can contact the Canada Pension Plan to review the status of your pension-sharing application.
You may request are reconsideration of any decision. During the reconsideration phase, your application will be reviewed.
This material has been prepared for informational purposes only and should not be considered personal investment advice or solicitation to buy or sell any securities. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice either. Every effort has been made to compile it from reliable sources, however, no warranty can be made as to its accuracy or completeness. Investors should seek appropriate professional advice before acting on any of the information here. The views expressed here are those of the author and writer only and not necessarily those of WorldsourceSecurities Inc., its employees or affiliates. Worldsource Securities Inc., is the sponsoring investment dealer and the member of Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
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