Skip to main content

The Globe and Mail

Don’t forget income splitting on RRIF withdrawals

Your questions have been piling up in the Investor Clinic inbox, and today I'll answer two of them.

Actually, because they're somewhat technical, I reached out to a couple of tax experts at BMO Nesbitt Burns: John Waters, head of tax and estate planning, and his colleague Linda Leung, director of U.S. tax planning.

When I make a withdrawal from my registered retirement income fund (RRIF), can I split the income with my spouse? What other sources of income am I allowed to split?

Story continues below advertisement

The ability to split RRIF income for tax purposes between a spouse or common-law partner depends on the age of the transferor spouse.

If the transferor is 65 or over (regardless of the age of the transferee spouse), it is possible to achieve pension income-splitting for RRIF income provided both spouses are Canadian residents for tax purposes.

The pension income-splitting rules provide a simple strategy for couples to reduce their overall family tax bill by taking advantage of the transferee spouse's lower marginal tax rate.

Under the rules, you can allocate up to 50 per cent of eligible pension income to a spouse. Each spouse must make an election on his/her income tax return each year.

For income tax purposes, the amount allocated will be deducted from the income of the spouse who actually received the eligible pension income and added to the income of the other spouse.

Sources of pension income other than RRIFs are also eligible.

If you are 65 or over and receive payments from a registered pension plan, life income fund (LIF), locked-in retirement income fund (LRIF) or lifetime annuity in a registered plan, the income will qualify for splitting. The income portion of certain annuities in a non-registered account may also qualify.

Story continues below advertisement

However, if you are under 65, generally, only payments from a registered pension plan will qualify for pension income splitting. RRIF, LIF, LRIF or annuity income will only qualify if received as a result of the death of a spouse.

The Canada Pension Plan has its own set of rules for income "sharing." Click here for more information.

I have heard that U.S. citizens living in Canada do not have a tax treaty that recognizes the tax-free savings account (TFSA). I also understand that even capital gains on principal residences may be fully taxed by the U.S. Internal Revenue Service on sales of homes in Canada that are owned by U.S. citizens. Do I have this right?

You have a lot of it right. U.S. citizens living in Canada must report worldwide income on their U.S. income tax returns as well as their Canadian tax returns.

Canada does have a tax treaty with the United States that allows U.S. citizens to elect to defer the income earned in an RRSP such that the income would not be taxable for federal U.S. income tax purposes until amounts are withdrawn.

Unfortunately, the same election is not available for TFSAs. As such, any income earned in the TFSA would be included as taxable on an annual basis for U.S. income tax purposes.

Story continues below advertisement

The U.S. tax rules with respect to the capital gains on the sale of a principal residence are different from the ones applicable for Canadian income tax purposes.

While the capital gain from the sale of a principal residence is typically exempt from taxation for Canadian income tax purposes, you would only be able to exclude up to $250,000 (U.S.) of that gain ($500,000 if you file U.S. income tax returns jointly with your spouse) for U.S. income tax purposes if certain criteria are met.

The factors that are relevant for the purposes of determining whether or not you are eligible to claim the $250,000 capital gain exclusion generally relate to the length of time you own the principal residence and the length of time you have used that residence as your "main home." The location of the home (i.e., in Canada or elsewhere) is not part of the criteria.

Report an error Licensing Options
About the Author
Investment Reporter and Columnist

John Heinzl has been writing about business and investing since 1990. A native of Hamilton, he earned a master's degree from the University of Western Ontario's Graduate School of Journalism and completed the Canadian Securities Course with honours. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at