Skip to main content
investor clinic

I recently retired at age 66 and started collecting my teacher’s defined benefit pension in July. My wife is also retired, but she is just 57. Am I allowed to split up to half of my pension with her? She has a defined contribution pension plan with her employer, but her income will certainly be lower than mine. I’m also wondering about my registered retirement savings plan, which I intend to convert to a registered retirement income fund when I turn 71. Am I correct that I cannot split my RRIF income with my wife until she turns 65?

To answer your first question, the regular payments from a registered pension plan (including any bridge benefits for those younger than the age of 65) are eligible for income splitting with a spouse or common-law partner, regardless of the age of the transferor or transferee. (An exception is for Quebec provincial tax purposes, where the transferor must be at least 65. Income can still be split for federal tax purposes in Quebec if the transferor is younger than 65.)

By splitting up to 50 per cent of your teacher’s pension with your lower-income spouse, the pension benefits will be taxed at a lower rate.

But that’s not the only advantage of income splitting. “The clawback of your Old Age Security benefit and age amount tax credit may also be reduced or eliminated,” says Lea Koiv, a tax, retirement and estate-planning expert with Lea Koiv & Associates.

What’s more, you and your spouse will both be able to claim the pension credit – up to a maximum of $2,000 for federal tax purposes. The pension credit varies for provincial tax purposes.

You and your spouse will need to make an annual election on your tax returns to split the income, but the transaction is for tax purposes only, and no money has to actually change hands. “The election form – called a Joint Election to Split Pension Income – should be filed by the filing due date for the return,” Ms. Koiv says.

Regarding your RRIF, withdrawals are eligible for income splitting if the RRIF owner is 65 or older at the end of the tax year, so you’re in luck there, too. The spouse with whom RRIF withdrawals are split can be of any age, but to claim the pension credit of up to $2,000, the spouse must have reached 65 during the year. However, “the $2,000 credit cannot be claimed a second time if it was already claimed for the income from the pension plan,” Ms. Koiv says.

If a yield seems too good to be true ...

Think twice before jumping into high-octane funds

I see that you hold SmartCentres Real Estate Investment Trust (SRU.UN) in your model Yield Hog Dividend Growth Portfolio. While doing some research online, I noticed SmartCentres has a price-to-earnings ratio of more than 60, which seems ludicrously expensive. Am I missing something?

I have often warned readers not to rely on third-party websites for financial measures such as the price-to-earnings multiple. For one thing, the published P/E doesn’t always indicate whether it is based on past earnings, which may have been affected by one-time items, or on analysts’ estimates of future earnings. Moreover, the P/E can be misleading for some industries.

In the case of real estate investment trusts, traditional earnings isn’t an appropriate measure because it includes accounting charges such as depreciation that don’t affect a REIT’s cash flow or ability to pay distributions. The real estate industry therefore uses alternate measures – typically funds from operations (FFO) and adjusted funds from operations (AFFO) – to gauge a REIT’s financial performance.

FFO is essentially a REIT’s net income, with adjustments that include adding back depreciation and amortization. AFFO is a more stringent measure of performance that deducts capital expenditures required to maintain the REIT’s buildings.

For the current year ending Dec. 31, analysts estimate that SmartCentres will generate AFFO per share of $2.02, according to Refinitiv. Based on the REIT’s trading price of about $30.50, its price-to-AFFO multiple is 15.1 ($30.50/$2.02), which is a lot more reasonable than the P/E of more than 60 that you quoted.

Similarly, using earnings to calculate a REIT’s payout ratio can make the distribution look riskier than it actually is. In SmartCentres’ news release announcing its second-quarter results this week, it used a measure called adjusted cash flow from operations (ACFO), which is similar to AFFO, to calculate its distribution payout ratio of 84.5 per cent. That’s down from 106.2 per cent in the second quarter of 2020, when the COVID-19 pandemic was wreaking havoc on retail REITs, suggesting SmartCentres made the right call to maintain its distribution even as other REITs were cutting their payouts.

Globe Unlimited subscribers can view the complete model Yield Hog Dividend Growth Portfolio online at tgam.ca/dividendportfolio.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error

Editorial code of conduct