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Form T1032 Step 4 Note

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Filing Your Return -> Pension income tax credit -> - Form T1032

Completing form T1032 - Step 4 Pension income amount for the pension income tax credit

Step 4 of this form is where the pension income amount is calculated, for both the pensioner and the pension transferee (the one to whom the split-pension (line E) is transferred).  This step  is relatively easy to fill out, unless the "Note" applies when calculating the pension income amount for the pension transferee.  We will only talk here about the situation arising when the Note applies, which is if:

bullet the pensioner is over 65, and
bullet the pension transferee is under 65, and
bullet the pension transferee has less than $2,000 of pension income eligible for the pension income tax credit (line J), before the allocation of pension from the pensioner.

There are 3 different situations which may arise:

1.  If the pensioner does not have qualified pension income, which is eligible for the pension income tax credit for a person of any age, then the pension transferee will enter zero on line K.

2.  If the pensioner has qualified pension income of less than $4,000, then the pension transferee will enter on line K the lesser of

bullet 50% of the pensioner's qualified pension income, divided by 12 and multiplied by the # of months married or living common-law, or
bullet the split-pension amount (line E) being transferred from the pensioner

This is the result of doing Step 2 of the T1032 using only the pensioner's qualified pension income.  This is done on a separate piece of paper, which will not be submitted with your tax return.

3.  If the pensioner has qualified pension income of $4,000 or more, then the pension transferee will enter on line K the split income amount (line E) being transferred from the pensioner.

Example:

The pensioner, John, is 66 years of age, and his spouse, Mary, is 64.  They were married for the full 12 months of the tax year.  Mary has no pension income.

John has total pension income of $24,000, made up of:

bullet $21,000 from RRIF withdrawals - this is eligible for the pension income tax credit only for taxpayers age 65 or greater.
bullet $3,000 from a defined benefit company pension plan - this is qualified pension income, eligible for the pension income tax credit for taxpayers of any age.

John can elect a split-pension transfer of a maximum of $12,000 (50% of $24,000).   He and Mary decide to elect to transfer $3,000.

Step 4:  Pension income amount

For John:

Amount from line A (John's total eligible pension income)

$24,000

F

Amount from line E (the elected amount)

$3,000

G

Line F minus line G

$21,000

H

On line 314 of Schedule 1 of his tax return, John will enter the amount from line H or $2,000, whichever is less, which will be $2,000.

For Mary:

Because Mary is under 65, John is over 64, and Mary has less than $2,000 (zero) of qualified pension income,  she has to follow the Note from form T1032 to calculate her pension income amount.

(1) This amount will exclude the $21,000, leaving the $3,000 of qualified pension income.

(2)  Mary now has to complete the Step 2 calculation using the $3,000.  The result of this is 50% x $3,000, or $1,500.

(3) Mary enters on line K the lesser of amount from line E ($3,000 elected amount) or the result of $1,500 from (2) above.

Mary's pension income amount:

Mary's pension income

nil

J

Amount from (3) above

$1,500

K

Add lines J and K

$1,500

L

On line 314 of Schedule 1 of her tax return, Mary will enter the amount from line L or $2,000, whichever is less, which will be $1,500.

You will notice that even though John and Mary elected to transfer only 12.5% of John's total pension income, Mary was still able to use a pension income amount equal to the lesser of:

bullet 50% of John's qualified pension income, divided by 12 and multiplied by the # of months married or living common-law, or
bullet the elected split-pension amount, or
bullet $2,000

If John's $24,000 of pension income had consisted of $19,000 from RRIF withdrawals, and $5,000 from a company pension plan, and he and Mary elected a split-pension amount of $4,000, then Mary would have a pension income amount of the lesser of 

bullet 50% x $5,000, or $2,500
bullet $4,000, or
bullet $2,000

Thus, she would use the maximum federal pension income amount of $2,000 for her pension tax credit.

The T1032 form refers to "money purchase provision".  The following is from the Canada Revenue Agency (CRA) glossary:

Money purchase
A money purchase, also known as a defined contribution, plan or provision is one where each member has one or more accounts to which contributions and earnings are credited. The amount of the member's benefit is not determined until the time the benefit is provided. Please see subsection 147.1(1) of the Income Tax Act for the definition.

Provision
A provision is the set of plan terms that describes how contributions will be made, and how benefits will be accrued and paid out to members. Plans may have more than one provision under which benefits accrue; however, each provision must stand alone and not be conditional on another. Provisions are either money purchase or defined benefit.

 

Back to Pension Income Tax Credit

 

Revised: February 16, 2013

 

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