Weighing the fairness of pension income splitting

January 07, 2022
Some single retirees argue that splitting pension income is an unfair advantage.
Some single retirees argue that splitting pension income is an unfair advantage for married couples.

In 1966, the report of the Royal Commission on Taxation appointed by prime minister John Diefenbaker declared that fairness should be the primary objective of the taxation system. The tax system has changed since 1966; fairness seems to be  a matter of interpretation.

Federal retirees Rosemary Campbell and Jake Jacobson, both members of the National Association of Federal Retirees, have differing interpretations of the fairness of pension income splitting. Campbell sees it as privileging men because it’s premised on the traditional single-income household in which the wife was unemployed. Jacobson feels pension splitting is a fair benefit that acknowledges the family as a single unit and that, overall, benefits only couples with disparity in their pension incomes.

Pension income splitting allows individuals who are married or have a common-law partner to split up to  50 per cent of their eligible pension income with their spouse or partner with less income, thereby reducing their taxable income. The transferred portion is taxed at a lower rate because of the lower spousal income or because the higher pension recipient moves to a lower tax bracket thanks to the split. To qualify for income splitting, a couple must live in Canada together at the end of the year. If they live apart, it must be for reasons of work, school or medical necessity. If a couple lives apart due to a breakdown in the relationship, they cannot split pension income.

Single people — those who never married or are widowed or divorced — cannot split their pension income with another person, even if they are in a cohabiting arrangement such as living with a sibling to reduce costs.

Arguments regarding pension income splitting generally centre around fairness or equity. Constance Smith, professor emeritus of economics at the University of Alberta, whose research interests include pensions, notes the rationale for pension income splitting comes from our progressive income tax system in which higher income earners pay a higher tax rate. For example, with a progressive income tax, if one member of a couple has pension income of $60,000 while the other has none, all else being equal, that couple would pay more tax than a couple receiving pensions of $30,000 each.

A related issue, Smith says, is “whether the tax system should aim to ensure equal treatment across households, or across individuals.” In some ways, Canada’s tax system focuses on individuals — we complete an individual, not a household, tax form. Income splitting could be used to justify equal treatment across households.

The Institute for Research on Public Policy argues that it is unfair to allow senior couples to split their pension income while prohibiting other couples from splitting general income, such as splitting taxable income to recognize the contribution of the at-home spouse or partner raising young children in a single-income household or applying taxes evenly within two-earner couples whose earnings are different. The same argument of unfairness applies to single retirees.

Laura Tamblyn Watts, an advocate for the elderly as president and CEO of CanAge and a fellow at the University of Toronto, says tax discrimination against single seniors is not on the government policy radar, in part because retirement programs are still based on the shorter lifespans of years ago. As well, society focuses on families and couples, not the elderly, especially women. Given women’s longer average lifespans, the majority of single retirees are women, so gender equity is part of the argument. Watts asserts that income splitting gives an advantage to couples over singles, with gender a significant consideration, but the CRA does not take gender inequity into account. Watts advocates for greater “equity and pension splitting reforms to help overcome these inequities against singles.” An equivalent-to-married tax credit or deduction for single retirees would help.

Watts points out that it’s cheaper individually to live as a couple. Daily life costs a single person 40 per cent more than it does each of the individuals who make up a couple. Rosemary Campbell, who is single and lives in Ottawa, worked for the federal public service for 35 years, much of it with Statistics Canada. She agrees with Watts, pointing to the general struggles of being single and taking care of every aspect of life on one’s own, whereas married couples can share the load. She questions equity in pension splitting policy and suggests it is “a sexist slap [that discriminates] against senior women” and favours men who typically “have higher incomes and pensions than women.” A single woman pays the full tax rate on her pension income, but men with the same income, married to women with lower incomes, can share part of their pension income to gain tax advantages despite their total income exceeding the single woman’s by several thousand.

Jake Jacobson, who spent 22 years as a Royal Canadian Air Force officer and 12 as a civilian member of the RCMP, is retired on Vancouver Island and has been married for more than 40 years. He suggests pension income splitting is a tax benefit, rather than a tax break, that recognizes the contributions of the at-home spouse rearing children who “had no pensionable income for her [or his] work performed in support of the marriage.” Such work is very important, but goes financially unrecognized in our society. A married couple with children has greater costs during the child-rearing years than an individual.

Additionally, says Jacobson, in retirement, a couple's combined health-care costs may be significantly higher than a single person’s, while retirement health care insurance often covers less than it does while we’re working. Since the tax benefit of pension splitting depends on the pension amount of both spouses, from zero to an equal contribution, pension splitting levels the playing field for couples over a lifetime. He notes that “tax fairness is a complicated issue and one that can never be totally achieved.”

Echoing Jacobson, Cheryl Nichols, a single veteran in Alberta, who served 17 years in the Canadian Armed Forces, says she doesn’t believe true tax fairness can happen, but it’s not restricted to pension income splitting. She cites the unfairness of clawing back OAS after a military member, throughout their entire career serving their country, paid the federal taxes that provide that general pension.


Eligible pension income includes:

  • The taxable part of pension payments from a superannuation or pension fund/plan
  • Payments resulting from the death of a spouse/partner, or if the transferring spouse/partner is 65 or older on Dec. 31:
    • annuity and registered retirement income fund (RRIF) or life income fund
    • registered retirement savings plan (RRSP) annuity
    • qualifying amounts from a retirement compensation arrangement

Ineligible pension income includes:

  • Old Age Security/Guaranteed Income Supplement (OAS/GIS)
  • Canada Pension Plan, Quebec Pension Plan (CPP, QPP)
  • Foreign-source pension income tax-free in Canada because of a tax treaty that allows a deduction
  • Income from a U.S. individual retirement account (IRA)
  • Amounts from a RRIF transferred to an RRSP, another RRIF or an annuity


This article appeared in the winter 2021 issue of our in-house magazine, Sage. While you’re here, why not download the full issue and peruse our back issues too?