Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting This is a Major Departure from Tax Policy & The Non-Refundable Tax Credit Rate Will Increase to 15.5%

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting Careful Income Planning Will Be More Important Than Ever Before

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting This measure will allow any Canadian resident who receives income that qualifies for the existing Pension Income Tax Credit to allocate to their resident spouse (or common-law partner) up to one-half of that income. Example: Income from the Canada Pension Plan Retirement Benefit would not qualify and should there still be a need to “Split” the CPP, a request for Assignment will still have to be made. Pension Income Qualifying for Splitting are different for taxpayers who are at least age 65 in the year and those who are not.

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting It is important to understand what income from which sources qualify for Pension Income Splitting

Income eligible for the pension income credit may be split. Generally, this includes income in the form of a pension from a Registered Pension Plan (RPP), regardless of the recipient’s age (i.e., a pension from an employer- sponsored defined benefit plan or defined contribution plan). Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting – Under Age 65

Income eligible for the pension income credit may be split. Generally, this includes income in the form of a pension from a Registered Pension Plan (RPP), regardless of the recipient’s age (i.e., a pension from an employer-sponsored defined benefit plan or defined contribution plan). + Income from a registered retirement savings plan (RRSP) annuity, a registered retirement income fund (RRIF), a LIF (a locked-in RRIF), or a deferred profit sharing plan (DPSP) annuity Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting – Age 65 +

Taxation Issues – New Changes For the 2007 Tax Year Potential Tax Savings For a Couple With Total Income of $35, Spouse “A”Old Age Security:$5, Canada Pension Plan: 7, Qualified Pension Income:16, Total Income: $30, Spouse “B”Old Age Security: 5, Total Income for Couple: $35, Tax Payable Without Pension Income Splitting$1, Tax Payable With Pension Income Splitting Total Income Tax Savings$1,053.33

Taxation Issues – New Changes For the 2007 Tax Year Potential Tax Savings For a Couple With Total Income of $65, Spouse “A”Old Age Security:$5, Canada Pension Plan: 7, Qualified Pension Income:46, Total Income: $60, Spouse “B”Old Age Security: 5, Total Income for Couple: $65, Tax Payable Without Pension Income Splitting $11, Tax Payable With Pension Income Splitting 8, Total Income Tax Savings$ 3,636.11

Taxation Issues – New Changes For the 2007 Tax Year Potential Tax Savings For a Couple With Total Income of $95, Spouse “A”Old Age Security:$5, Canada Pension Plan: 7, Qualified Pension Income:76, Total Income: $90, Spouse “B”Old Age Security: 5, Total Income for Couple: $95, Tax Payable Without Pension Income Splitting $26, Tax Payable With Pension Income Splitting 16, Total Income Tax Savings $9,087.54

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting Splitting Pension Income is not automatic: 1.First you must plan your income to take full advantage. 2.You must compare and evaluate your tax returns to determine the financial benefit for you and your spouse or common law partner. 3.Both the individual receiving the eligible pension income and his or her spouse or common-law partner must agree to the allocation in their tax returns.

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting There will be a “Pension Splitting Election Form” that must be signed by each spouse. The spouse that is receiving the additional income has to acknowledge that they agree to the allocation, and is thus willing to pay the additional taxes on this amount. The decision to Income Split is “Made One Year at a Time”. Given that incomes may fluctuate annually, the ability to elect annually is to a couple’s advantage.

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting – Other Issues Another issue in question is the way in which payors of pensions will administer withholding taxes on those pensions. At present, tax is withheld on a basis similar to salaries, taking account of the pensioner’s allowable tax credits. Given the tax savings to which some family units will be entitled under the new sharing regime in 2007, most will want these savings throughout the year by a reduction in the withholding tax. Again, it is unclear at this time whether this will be permitted or how it will be administered.

Taxation Issues – New Changes For the 2007 Tax Year The result of Pension Splitting will be tax savings for many retirees: 1. Tax savings resulting from shifting income to a spouse (or common-law partner) who is in a lower tax bracket; 2.The $1,000 increase in the Age Credit Amount, plus a potential reduction in the “claw back” of the Age Credit Amount because of reduced income for the taxpayer splitting his or her income; and 3. Reduced “claw back” (repayment) of the Old Age Security benefits. Pension Income Splitting – Other Issues

Taxation Issues – New Changes For the 2007 Tax Year Pension Income Splitting – Other Issues What impact will Pension Splitting have on other non-refundable tax credits that are income tested such as Medical Expenses? What impact will Pension Splitting have on the Ontario Health Tax? How will withholding tax and tax installment payments be handled? These issues are still unclear, that is why it is important to be fully informed as information becomes available. Stay tuned.