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Kevin Greenard: Splitting your CPP

Canada Pension Plan contributions made while a couple was married or in a common-law union can be equally divided during or after a divorce or separation.

What’s mine is yours, and what’s yours is mine. This includes Canada Pension Plan contributions made while a couple was married or in a common-law union.

These contributions can be equally divided during or after a divorce or separation. The process of this is called credit splitting and was implemented as of Jan. 1, 1978.

Credits can be divided even though one spouse did not contribute to CPP during the period in which the couple was married or common-law. If you never contributed to CPP, credit splitting may help you qualify for CPP benefits. By credit splitting, the amount of your, and your former spouse or common-law partner’s, current or future benefits may be affected.

How do you qualify?

There are various factors that determine your credit splitting eligibility, such as whether you are divorced or separated, or whether you were married or common-law.

Marriage ended in divorce or annulment

If you were married and it ended in divorce or annulment, how you qualify depends on when you divorced or had your marriage annulled.

If you were married and it ended by divorce or annulment after Jan. 1, 1987, you could qualify to split credits if you lived with your past spouse for 12 or more continuous months, and your past spouse provides a notification and the required information to Service Canada. It’s important to note that there is no time limit on this last part, as long as the notification and information is provided.

If you were married and it ended by divorce or annulment between Jan. 1, 1978, and Dec. 31, 1986, you must have lived with your past spouse for 36 or more continuous months, and your past spouse provided notification in writing and the required documents within 36 months of your marriage ending.

If the 36-month time limit is not met, pension credits can still be split so long as your past spouse is alive and provides confirmation in writing to waive this time limit. Lastly, in order to qualify, your divorce or annulment must be recognized by Canadian law.

If you were married and it ended by divorce or annulment prior to Jan. 1, 1978, you cannot qualify for a credit split. This is because the CPP credit split program was not in existence before that date.

Marriage ended in separation

If you are married and have separated from your spouse, but have not officially divorced or had the marriage annulled, you might still qualify for a pension split.

The criteria for this is as follows:

  • The separation took place Jan. 1, 1987 or later.
  • You and your spouse lived together for at least 12 continuous months.
  • You and your spouse have been living apart for at least 12 continuous months.
  • Either you or your spouse notifies Service Canada in writing with the required documents.

There is no time limit on this, unless your spouse has passed away. If that is the case, you are required to apply within 36 months of your spouse’s date of death.

Common-law partnership ended

Before Jan. 1, 1987, common-law unions were not recognized for credit splitting purposes. If you and your common-law partner’s union ended Jan. 1, 1987 or later, there are three criteria that need to be met.

The first is you must have lived for 12 continuous months with your past common-law partner.

Secondly, you must be living apart for at least 12 consecutive months (unless your past common-law partner passes away).

Third, one of you must apply to Service Canada in writing, along with the required information, within 48 months of the day you started living apart (unless your past common-law partner is alive and writes to waive this time limit).

How does it work?

We can use Bill and Margaret as an illustration and follow their relationship over a 15-year period. Below we list the events that occurred during that period, followed by a chart to illustrate credit splitting.

Year 1: Bill and Margaret begin their relationship, but are living apart. As they are not considered common-law, that year’s earnings are not eligible for credit splitting.

Year 2: Bill and Margaret begin living together. As they are now considered common-law, that year’s earnings are eligible for credit splitting.

Year 4: Bill and Margaret marry. There is no change to the eligibility or past eligibility of credit years.

Year 5: Margaret leaves the workforce to attend university. Margaret worked a portion of the year, and although she does not have any earnings the next three and a half years, these years are still eligible for credit splitting as she and Bill are married.

Year 9: Margaret goes back to work.

Year 10: Bill loses his job. Similar to when Margaret went back to school, even though Bill does not have any earnings for almost two years, as they are married, any earnings by either Margaret or Bill are eligible for credit splitting.

Year 12: Bill finds new employment.

Year 14: Bill and Margaret divorce in November of year 14. This year is excluded from the calculation. Even though Bill and Margaret were together for almost the entire year, the final calendar year a couple is together is excluded from the division. In other words, the division of credits ends the December of the year before you separate, divorce, or annul.

Year 15: Bill and Margaret file to split their CPP pension credits earned during their years together. This split is a permanent change to their CPP record of earnings. The CPP that they are then eligible for in the future will be based off their respective earnings after credit division, as shown in the two most-right-hand columns below.

Year

Bill’s earnings

Margaret’s earnings

Total yearly earnings

Year eligible for credit splitting?

Bill’s earnings after credit division

Margaret’s earnings after credit division

1

$35,000

$20,000

$55,000

No

$35,000

$20,000

2

$35,000

$20,000

$55,000

Yes

$27,500

$27,500

3

$37,500

$20,000

$57,500

Yes

$28,750

$28,750

4

$37,500

$20,000

$57,500

Yes

$28,750

$28,750

5

$40,000

$14,000

$54,000

Yes

$27,000

$27,000

6

$40,000

$0

$40,000

Yes

$20,000

$20,000

7

$42,500

$0

$42,500

Yes

$21,250

$21,250

8

$42,500

$0

$42,500

Yes

$21,250

$21,250

9

$42,500

$40,000

$82,500

Yes

$41,250

$41,250

10

$20,000

$52,000

$72,000

Yes

$36,000

$36,000

11

$0

$52,000

$52,000

Yes

$26,000

$26,000

12

$25,000

$55,000

$80,000

Yes

$40,000

$40,000

13

$50,000

$55,000

$105,000

Yes

$52,500

$52,500

14

$50,000

$60,000

$110,000

No

$50,000

$60,000

15

$52,500

$60,000

$112,500

No

$52,500

$60,000

Had Bill or Margaret exceeded the yearly maximum pensionable earnings (YMPE) in any of the above years, the YMPE would be the maximum earnings for purposes of credit splitting that could be split.

How do you apply?

The credit split can only occur after you and your former spouse are divorced, have had your marriage annulled, or are separated for at least 12 months. In the case of common-law partners, you must be separated for at least 12 months.

Either you, or your past spouse or common-law partner, can initiate the request to split CPP.

This can be done through an electronic or paper application. The electronic application is completed online through your My Service Canada Account by completing the CPP Credit Split form.

With this option, you must provide original or certified true copies of the required documentation to Service Canada either by mail or in person at your local Service Canada office.

For paper applications, you must complete form ISP1901 CPP Credit Split, and provide original or certified true copies of the required documentation to Service Canada either by mail or in person at your local Service Canada office.

Once you have applied, Service Canada reviews the application and accompanying information. After the review is completed, both you and your former spouse or common-law partner receive a decision letter.

What additional information is required?

In addition to the online CPP Credit Split form, or the in person form ISP1901 CPP Credit Split, there are some documents and information you must provide as follows:

1) Date of marriage: If you were legally married, the original or certified true copy of the marriage certificate is required. Should you be unable to provide that, you can complete the “Statutory Declaration of Legal Marriage” form from Service Canada. In the case of sending originals, Service Canada does recommend sending certified photocopies instead of original documents to prevent them from the risk they are lost in the mail. Also, this way you have them should you require them for anything else. Service Canada can certify copies for you free of charge. Should you have to send the originals, it is recommended to do so by registered mail.

2) Date your marriage ended: If you were legally married, you must provide either the decree absolute of divorce, a judgement granting divorce under the Divorce Act, 1985, or a judgment of nullity of a marriage. Should you be unable to provide one of these documents, Service Canada has a form called “Statutory Declaration – Separation of Legal Spouses” which can be completed.

3) Date your common-law union began: If you were in a common-law relationship, you must complete Service Canada’s form titled “Statutory Declaration of Common-law Union” in order to declare the date when your common-law union began and finished.

4) Social Insurance Number: Your SIN must be included on all documents prior to them being sent or submitted to Service Canada, except for on original documents.

When is a credit split not allowed?

There are a few instances where a credit split may not be allowed, or where a portion of time may be excluded. These instances are as follows:

  • If a couple’s total pensionable earnings in a year is less than two times the year’s basic exemption then a credit split is not allowed ($3,500 each, or $7,000 combined for 2022).
  • The period before a spouse or common-law partner reaches age 18 is excluded from the credit split.
  • The period after a spouse or common-law partner reaches age 70 is excluded from the credit split.
  • The period when a spouse or common-law partner was receiving CPP or QPP benefits.
  • The period when a spouse or common-law partner was receiving the CPP or QPP disability benefit.

There are numerous components and things to look at when going through a separation. CPP splitting is one of the more straightforward pieces.

We recommend meeting with your Portfolio Manager to obtain a more comprehensive checklist of other items needed and to consider. Speak to your professional tax adviser about your particular facts and circumstances when evaluating and before implementing any tax planning strategies.

Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email greenard.group@scotiawealth.com, or visit greenardgroup.com.