Mr. and Mrs. Garcia are both 66 years old. Mr. Garcia receives $45,000 annually from a Defined Benefit pension plan, while Mrs. Garcia has no pension income. They both have other taxable income that places them in high marginal tax brackets. What is the maximum amount of pension income Mr. Garcia can split with Mrs. Garcia, and what is the primary benefit of doing so for their tax planning?

Question: Mr. and Mrs. Garcia are both 66 years old. Mr. Garcia receives $45,000 annually from a Defined Benefit pension plan, while Mrs. Garcia has no pension income. They both have other taxable income that places them in high marginal tax brackets. What is the maximum amount of pension income Mr. Garcia can split with Mrs. Garcia, and what is the primary benefit of doing so for their tax planning?

Answer options:

• 100% of the pension; to double the amount of income eligible for the Pension Income Credit.
• 50% of the pension; to shift income to a lower-income spouse, reducing overall household taxation. ✅ 50% of the pension; to increase the amount of income eligible for the Pension Income Credit.
• 25% of the pension; to reduce the amount of income subject to OAS clawback.

Correct answer: 50% of the pension; to increase the amount of income eligible for the Pension Income Credit.

Explanation: A taxpayer can split up to 50% of their eligible pension income with their spouse. In this case, Mr. Garcia can split $45,000 * 0.50 = $22,500 with Mrs. Garcia. The primary benefit is to optimize the use of personal tax credits (like the Pension Income Credit) and marginal tax rates by spreading income between two individuals, potentially lowering the overall household tax burden by increasing the amount eligible for the pension income credit.