[Fall 2023 GPS] A Comprehensive Guide to Sharing CPP: Maximising Benefits

Introduction

The Canada Pension Plan (CPP) is an important piece of retirement income for many Canadians. Understanding how to optimize CPP benefits, is essential for a secure and comfortable retirement. In this article, we'll explore the benefits of sharing CPP between spouses, the eligibility criteria, what situations the strategy could apply to, the mechanics of CPP sharing, and the step-by-step process to apply for CPP sharing.

 

Why Share CPP Between Spouses?

Sharing CPP between spouses or common-law partners can lower the family’s total taxes. It can be especially beneficial when there is a significant difference in the spouses' CPP contribution histories or anticipated retirement ages.

Eligibility Criteria for CPP Sharing

Before applying for CPP sharing, it's crucial to ensure that both spouses (or partners) meet the eligibility criteria. Here are the key points to consider:

 

• Both partners must be living together.
• Both partners must be at least 60 years old.
• Unless one partner never contributed to CPP, both partners must be receiving CPP or be in the process of applying for it..

 

What situations would be ideal for CPP sharing?
When the spouse with the higher CPP entitlement is expected to have a higher income from other sources, the couple should consider sharing CPP; however when the spouse with higher CPP entitlement is expected to have a lower income in retirement, it may not make sense to share CPP.

The mechanics of CPP sharing
Here are the rules for CPP sharing:

1. Generally, CPP pension sharing doesn’t result in equal split of the CPP benefits.
2. CPP pension sharing does not change the total CPP you would have otherwise received as a couple.
3. The number of years you and your spouse lived together during your “joint contributory period” determines the shareable portion of your and your spouse’s CPP retirement pension.
4. The joint contributory period begins when the older of you and your spouse turns 18 and ends when you both begin to get CPP retirement benefits.

 

Let’s take an example of Suzie and Jeff. Suzie is entitled to $1,200/mo of CPP, while Jeff is entitled to $600/mo. They were married for 70% of their contributory period, meaning they can share 70% of the difference in their CPP entitlements. ($1,200 - $600) x 0.7 = $420. They can split $420 of their CPP, meaning Jeff will have $810 and Suzie will have $990.

 

When and how to apply?

CPP sharing is initiated when both spouses are eligible for their CPP retirement pensions; at age 60 or older. It's essential to coordinate the timing of your applications to maximize the benefits of income splitting.

A number of forms from Service Canada must be filled out in order to request CPP sharing or to stop it. Service Canada website offers instructions on how to fill out the forms and what kind of supporting papers are required. Use this link to access the forms:

https://www.canada.ca/en/services/benefits/publicpensions/cpp/share-cpp.html

 

Conclusion

Income splitting is one of if not the most significant tax advantages of being married (or in a common law relationship) in Canada, especially for retirees. By carefully following the steps outlined in this guide, couples can take advantage of this opportunity to create a more financially secure and balanced retirement. It's always advisable to consult with a financial advisor to tailor the CPP sharing strategy to your specific financial situation and retirement goals.