It’s your Money – Keep It!

Two tax-saving strategies

1. Income splitting

2. Pension income tax credit

Income Splitting

Now available for income splitting

Married & common law couples

Spouses can split retirement income

Save thousands in taxes each year

Have up to 50% eligible income transferred to lower income spouse

Eligible

Life annuity payments from a Registered Pension Plan (RPP)

Annuity payments from a Registered Retirement Savings Plan (RRSP)

Withdrawals from a Registered Retirement Income Fund (RRIF)

Annuity and installment payments out of a Deferred Profit Sharing Plan (DPSP)

Eligible, continued

Income from some foreign pension arrangements and U.S. Individual Retirement Accounts (IRAs)

The interest element of a non-registered annuity contract (prescribed and non-prescribed)

Accrued (interest) income from a non-registered deferred annuity contract such as a Guaranteed Investment Contract (GIC) provided by an insurance company

Not eligible

Old Age Security (OAS)

Canada / Quebec Pension Plan (CPP / QPP)

Lump-sum death benefits

Retiring allowances

Not eligible, continued

Salary deferral arrangements, retirement compensation arrangements, employee benefit plans and employee trust plans

Gains resulting from a policy loan or disposition

Capital gains, dividends and interest

Income splitting options

1. Eligible income

2. Canada/Quebec Pension Plans

3. Spousal RRSPs

Eligible income

Split up to 50%

Optimum transfer may be less than 50%

Canada/Quebec Pension Plans

Spouses of at least 60 years of age can share up to 50% of benefits earned while living together

Spousal RRSPs

Income splitting at any age

Not restricted to 50%

Younger spouse – delayed until the year after spouse reaches age 71

Example 1

No Splitting With SplittingDifference

John Marie John Marie

Company Pension

$85,000 - $42,500 $42,500 -

RRIF/Spousal RRIF

$19,000 $10,000 $13,892 $15,108 -

CPP $10,365 - $10,365 - -

OAS $5,903 $5,903 $5,903 $5,903 -

Gross income $120,268 $15,903 $72,770 $63,511 -

Tax1 ($35,460) ($1,138) ($16,668) ($13,770) -

OAS clawback ($5,903) - ($1,372) - -

Age credit2 - $1,034 - $45 -

After-tax income

$78,905 $15,799 $54,620 $49,786 Increase $9,702

1 Taxes owing are calculated using graduated rates for the province of British Columbia taking into account the Basic Personal Exemption and the Pension Income Credit ($367) if applicable. Generally others will also apply.2 The Age Credit is $1,034 less clawbacks.

For illustrative purposes only.

Example 2

No Splitting With SplittingDifference

Jim Elaine Jim Elaine

Company Pension

$85,000 - $42,500 $42,5003 -

RRIF/Spousal RRIF

$19,000 $10,000 $9,500 $19,500 -

CPP $10,365 - $5,183 $5,182 -

OAS $5,903 - $5,903 - -

Gross income $120,268 $10,000 $63,086 $67,182 -

Tax1 ($35,460) ($222) ($13,896) ($14,895) -

OAS clawback ($5,903) - - - -

Age credit2 - - $311 - -

After-tax income

$78,905 $9,778 $49,501 $52,287 Increase $13,106

1 Taxes owing are calculated using graduated rates for the province of British Columbia taking into account the Basic Personal Exemption and the Pension Income Credit ($367) if applicable. Generally others will also apply.2 The Age Credit is $1,034 less clawbacks.3 Even though under age 65, Elaine now has a Pension Income Credit on the transferred company pension income.

For illustrative purposes only.

The Pension Income Tax Credit

Reduce taxes even more

Even at age 65 or older

Available even without income from RRIF or private pension

Pension income tax credit

Deduct a tax credit equal to 15.5% on first $2,000

Up to $310 in federal tax savings Plus provincial tax credits

Non-refundable

Eligible

Life annuity payments from a Registered Pension Plan (RPP)

Annuity payments from a Registered Retirement Savings Plan (RRSP)

Withdrawals from a Registered Retirement Income Fund (RRIF)

Annuity and installment payments out of a Deferred Profit Sharing Plan (DPSP)

Eligible, continued

Income from some foreign pension arrangements and U.S. Individual Retirement Accounts (IRAs)

The interest element of a non-registered annuity contract (prescribed and non-prescribed)

Accrued (interest) income from a non-registered deferred annuity contract such as a Guaranteed Investment Contract (GIC) provided by an insurance company

Not eligible

Old Age Security (OAS)

Canada / Quebec Pension Plan (CPP / QPP)

Lump-sum death benefits

Retiring allowances

Not eligible, continued

Salary deferral arrangements, retirement compensation arrangements, employee benefit plans and employee trust plans

Gains resulting from a policy loan or disposition

Capital gains, dividends and interest

Creating the income from an insurance GIC

Annual Interest Rate

Non-Registered Savings Required

4% $50,000

5% $40,000

6% $33,333

7% $28,570

8% $25,000

Income splitting where both spouses are age 65 or more

Invest double the amount of non-registered savings

Make an election on tax returns to each claim $2,000

Maximize tax benefits of the $2,000 Double your tax credits

Transferring unused credits to a spouse

At least age 65

Have eligible income but unable to use full credit

Transfer unused portion to spouse

Receiving spouse can claim at any age No eligible income required

Speak to your advisor

Income splitting and pension income tax credit Two ways to

minimize tax during retirement

Maximize your retirement income

Important notes

The commentary in this presentation is for general information only and should not be considered investment or tax service to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.

Manulife Investments is the brand name identifying the personal wealth management lines of business offered by Manulife Financial and its subsidiaries in Canada. As one of Canada’s largest integrated financial services providers, Manulife Investments offers a variety of products and services including: segregated funds, mutual funds, principal protected notes, annuities and guaranteed interest contracts.

Manulife and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation.