Eligible pension income splitting can affect the Old Age Security (OAS) clawback because it changes the net income reported by each spouse or common-law partner. Moving eligible pension income from a higher-income OAS recipient to a lower-income spouse can reduce the recipient’s recovery tax, although the receiving spouse’s income rises by the same amount.
How Pension Income Splitting Changes the OAS Clawback
The OAS recovery tax is determined separately for each recipient using individual income rather than combined household income. For the 2026 income year, recovery begins when net world income exceeds $95,323. That income determines recovery tax for the July 2027 to June 2028 payment period.
Under the federal pension income splitting rules, a person can allocate up to 50% of eligible pension income to a spouse or common-law partner. The transferring spouse claims the elected amount as a deduction on line 21000, while the receiving spouse includes it on line 11600. Because net income is calculated after the line 21000 deduction, the election can move the transferring spouse below the recovery threshold or reduce the amount above it.
The result is not automatically beneficial for the couple. If the receiving spouse also collects OAS, the additional income could increase that person’s recovery tax. The useful comparison is therefore the effect on both tax returns, rather than the reduction shown on only one spouse’s OAS.
You Cannot Split OAS Itself
OAS payments are not eligible pension income for pension-splitting purposes. Canada Pension Plan (CPP) benefits also do not qualify under these tax-return rules. The strategy works by splitting other qualifying pension income that contributes to the OAS recipient’s net income.
Eligibility depends partly on the type of pension and the recipient’s age. For someone aged 65 or older, qualifying income can include certain registered pension plan payments and eligible Registered Retirement Income Fund (RRIF) or annuity income. The exact rules for what qualifies are set out in the eligible pension income requirements.
How to Make the Pension-Splitting Election
The couple makes the election using Form T1032, Joint Election to Split Pension Income. Both spouses or common-law partners must make the election, and only one joint election can be made for a tax year. You do not need to physically transfer pension payments between bank accounts. Pension splitting is an income-tax election. The pensioner continues receiving the pension, while the elected amount is allocated between the two tax returns for tax purposes.
Before choosing a percentage, it is worth calculating several amounts rather than automatically electing the maximum 50%. The best percentage for OAS purposes can depend on how close each spouse is to the applicable recovery threshold. Broader strategies are covered separately in how to reduce or avoid the OAS clawback.
Other Questions About Income Splitting and the OAS Clawback
Can common-law partners use pension income splitting?
Yes. Eligible common-law partners can make the pension-splitting election under the same federal rules that apply to married spouses, provided the applicable eligibility requirements are met.
Do both spouses have to be receiving OAS to split pension income?
No. Pension income splitting does not require both people to receive OAS. Whether the election affects an OAS clawback depends on the income position of the person receiving OAS.
Can you change the percentage of pension income you split each year?
Yes. The election is made for a particular tax year, so an eligible couple can choose a different amount in another year as their incomes change.
Can a pension-splitting election be filed late or changed?
A late, amended or revoked election may be accepted in certain circumstances. The applicable conditions determine whether a change is allowed, so an election that has already been filed should be checked under the current pension income splitting procedures.
