Pension Income Splitting (Automatic)
This article explains how to use automated pension income splitting. Snap also allows you to manually perform pension income splitting and for details on this, please refer to the article Pension Income Splitting (Manual).
Please note that this feature is only available in Advisor Professional and Advisor Business plans. If you are on the Advisor Light plan and wish to use this feature, please go to your Billing Settings and upgrade to a new plan.
If you turn on the automatic pension income splitting in your scenario, Snap will calculate the optimal amount of taxable income to be shifted from one spouse to the other, up to the allowable maximum in each year. This way you can help your clients minimize their total tax liability. Among both spouses, they will save more dollars by paying less tax. This leads to instant savings for your clients.
To enable this feature in Snap, Select Scenario Setup -> Settings -> Advanced.
Under Advanced Settings, click the checkbox for Enable Pension Income Splitting so that this feature is turned on. If you wish to enable pension income splitting by default for all new scenarios, click that checkbox. (This is the default setting.)
First, you'll be able to see the new Pension Income Splitting column on the Planning page for the client or for the spouse.
You will see dashes ("-") in the column for Pension Income Splitting if there is no pension that is eligible to be split that year.
Once the feature has been enabled, you can turn it off and on by clicking the blue button at the top of the column. You will see the following dialogue box.
The amount being split for each year will show as a negative value for one spouse and as a corresponding positive value for the other spouse.
You'll be able to see the impact of the income splitting by examining the Marginal Tax Rate and the Effective Tax Rate on the individual Planning pages as well as the Capital and Estate section on a Combined Planning page.
The automated pension income splitting will only income split if this makes sense for the client. If the clients wouldn't benefit from income splitting, the income splitting column will contain $0 values.
The following income splitting rules are currently implemented in Snap Projections:
PENSION INCOME SPLITTING RULES 1. Pension income, LIF income, RRIF income are considered eligible for splitting. 2. The optimal amount for splitting is calculated, up to the maximum allowable. 3. Income splitting start age for: a. Defined Benefit pension is pension start age. b. RRIF is the year RRIF starts (but no less than age 65). c. LIF is the year LIF starts (but no less than age 65).
Please note that the general CRA pension income splitting rules are followed, however, there are exceptions and additional provisions may apply. These additional provisions should be consulted with a qualified professional. Further, the pension income splitting rules may change over time.
Note: In order to be more conservative in the projections for Quebec residents, Snap has disallowed pension income splitting in the years that the client is under age 65. In Quebec, pension income splitting before age 65 is only allowed for federal tax calculations. Snap has disallowed it for both federal and provincial tax calculations.