Canada Pension Plan Credit Splitting Guide for the Legal Profession
In case of disputes, the wording and provisions of the legislation and regulations governing the Canada Pension Plan prevail.
This guide contains general information about Canada Pension Plan credit splitting as of March 2008. However, as the Plan is continually evolving, it remains the responsibility of the reader to keep current with legislative changes to ensure the most effective counselling to our mutual clientele.
About this Guide
The provision in the Canada Pension Plan (CPP) regarding the Division of Unadjusted Pensionable Earnings (commonly known as credit splitting) allows, upon divorce, legal annulment, separation or the end of a common-law union, the equal division of pension credits that a couple built up during the time they lived together. The rules governing credit splitting have changed considerably since they were first introduced in 1978. As a lawyer or other legal practitioner, you and your clients should be aware of legislative changes regarding the division of CPP credits. Counselling your clients about credit splitting is important, as the division of CPP credits can affect their current or future entitlement to CPP benefits and their financial security in retirement. Human Resources and Social Development Canada (HRSDC) is the federal department responsible for the administration of the CPP. Service Canada (SC) delivers services and processes benefits on behalf of HRSDC. HRSDC has prepared this guide as a quick, easy-to-use reference on the subject of CPP credit splitting, largely in response to requests from the legal community for more information. The guide may be useful for lawyers, other legal practitioners and clients. In addition to consulting this guide, lawyers and other legal practitioners should closely review the CPP legislation and regulations related to credit splitting to gain a thorough understanding of implications for clients. For more information, please contact Service Canada (see page 11).
Chronology of Credit Splitting Legislation
Creation of the Canada Pension Plan
The CPP, established in 1966, is a compulsory, contributory social insurance program that provides basic earnings replacement in the event of retirement, disability or death of a contributor. It is financed through contributions from employees, employers and self-employed people, and from investment income of the CPP Fund. Almost everyone who works in Canada contributes to the CPP, except for those who work in Quebec. Quebec workers contribute to the Quebec Pension Plan (QPP), which is similar to the CPP in terms of coverage and benefits. Under both plans, eligible contributors receive retirement and disability benefits based on earnings and contributions made during their contributory period. Benefits can also be paid to the survivors or dependent children of contributors. However, the QPP has some important variations with respect to credit splitting. Legal practitioners with clients who have made contributions to the QPP, or to both the CPP and the QPP, should contact QPP officials for more information (see page 11). Contributions to both plans are taken into account.
CPP Credit Splitting Introduced in 1978
Credit splitting was introduced into the CPP on January 1, 1978. The legislation allowed for the equal division of CPP credits earned by legally married spouses during the period of cohabitation during the marriage and upon divorce or legal annulment of the marriage.
To qualify under the 1978 provisions, former spouses had to have lived together for at least 36 consecutive months during the marriage and had to apply for credit splitting w ithin 36 months of the final divorce decree or judgment of nullity. Credit splitting was not mandatory and did not extend to the separation of married spouses or common-law partners [Section 55 of the CPP ].
Waiver of Time Limit for Application
If former spouses would have qualified for a credit split if not for the time limit and if both parties agree, in writing, the Minister will waive the time limit and a credit split can be done. A waiver document exists for this purpose. It is the responsibility of the applicant former spouse to obtain the signature of the non-applicant former spouse. The nonapplicant former spouse must be living, since the waiver cannot be signed by the estate.
The 1983 Preece Case
In 1983, the Pension Appeals Board (PAB) decided, in the Minister of National Health and Welfare vs. Preece, that, if spouses had waived their respective rights to claims on each other's property by way of a written agreement or court-ordered adjudication on division of property, then they were precluded from applying for and receiving a division of pension credits. Those spouses who, prior to Preece, had been counselled that marital property waivers did not affect their right to a division of CPP pension credits found that they had inadvertently signed away that right. Since many written agreements contain, as a matter of course, a general waiver against future property claims, the Preece decision effectively precluded the division of CPP pension credits in the event of divorce in many cases, regardless of the actual intention of the parties. This situation was addressed by legislation introduced on June 4, 1986, and by a private member's bill proclaimed in force on March 15, 1991 (see page 5).
CPP credits acquired as a result of credit splitting may be an important source of income in retirement. In the event of a divorce, separation or common-law break-up, men and women alike are entitled to equal shares of CPP pension credits accumulated during the time they lived with their former spouse or common-law partner-provided they meet statutory requirements. The take-up of CPP credit splitting is very low relative to the number of divorces and separations. In 2004, the total number of divorces and separations in Canada except Quebec (where the QPP applies) was 60,163. These statistics exclude the number of former common-law unions. Yet, in 2004, only about 9,085 individuals applied for a credit split.
Legislation Amended Effective January 1, 1987
Effective January 1, 1987, legislative amendments were made to the credit-splitting provisions. The major changes included "mandatory" credit splitting in the cases of divorce or legal annulment occurring on or after January 1, 1987, and the extension of credit splitting to separated spouses and former common-law partners who separated on or after January 1, 1987 (Subsection 55.1, 55.11). The following is a description of the amendments. For a summary of the Conditions of Eligibility under the 1987 legislative amendments, see Table 1, p. 13.
Mandatory Credit Splitting upon Divorce or Legal Annulment
Legislative changes effective January 1, 1987, require the Minister responsible for the CPP to evenly divide the CPP credits jointly accumulated during the period of cohabitation of former spouses where a divorce has been granted under the Divorce Act or where a legal annulment has been obtained. This applies unless the spouses entered into a written agreement precluding CPP credit splitting, which otherwise meets statutory requirements, so as to be binding on the Minister (see section on written agreements, p. 6). Because divisions were made mandatory in case of divorce or legal annulment, no application is required. However, it is necessary for an individual requesting a credit split to provide the Minister with the required information and documentation (see Table 2, p. 14). The 36-month time limit within which to request a division was repealed as part of the 1987 legislative changes. Therefore, former spouses who were divorced on or after January 1, 1987, can no longer be barred from requesting credit splitting because of a time limit. The required period of cohabitation was also reduced from 36 months to 12 months [CPP, subsections 55.1(1)(a) and Subsection 55.1(3)].
Credit Splitting Expanded to Include Separation of Legally Married Spouses
Since January 1, 1987, credit splitting has been available to married spouses who cohabited for at least one year have been living separate and apart for at least one year. An application is required, but there is no time limit within which a spouse must apply (except upon the death of one of the spouses, in which case an application must be made within three years of the date of death) [CPP, subsections 55.1(1)(b) and Subsection 55.1(3)].
Credit Splitting Expanded to Include the Separation of Common-Law Partners
Since January 1, 1987, the legislation also provides for credit splitting in the event of the end of a common-law relationship, upon application by one of the former partners within four years of the date of separation. The partners must have cohabited in a conjugal relationship for at least one year and have been separated for at least one year. In 2000, the Modernization of Benefits and Obligations Act came into force, recognizing same-sex common-law partners. The Act extended benefits and obligations to all couples who cohabit in conjugal relationships for a continuous period of at least one year. Where a former partner dies less than a year after the separation, a credit split can be done if an application is made within four years of the date of separation. [CPP, section 2 "common-law partner" and subsections 55.1(1)(c) and 55.1(3)].
Waiver of Time Limit for Applications
In 2007, Bill C-36: An Act to Amend the Canada Pension Plan and the Old Age Security Act amended section 55.1 (1) (c) to provide for a credit split if the application is made within four years of separation, or at any time after that date, so long as both former commonlaw partners agree to waive the time limit in writing. A waiver document exists for this purpose. That means that the process of credit splitting between former partners beyond the four-year deadline would depend on the cooperation of both parties.
Based on CPP amendments effective January 1, 1987, statutory requirements had to be met to waive a division of CPP pension credits by way of either a written agreement entered into or a court order made on or after June 4, 1986 (the date the amending legislation was introduced in the House of Commons). They are as follows:
- A provision in a written agreement must expressly refer to the CPP and indicate the
- intention of the parties that there be no division of pension credits.
- A provision in a written agreement not to divide CPP pension credits must have been permitted by a provincial statute (see sections on Saskatchewan, Quebec, British Columbia and Alberta that follow).
- The agreement must not have been invalidated by a court order. [Subsections 55.2(2) and (3)].
Written agreements entered into, or court orders rendered prior to June 4, 1986, are binding on the Minister for the purposes of a credit split. Therefore, there could be no division of CPP pension credits if, prior to June 4, 1986, a written agreement contains a general waiver of property rights, or if there was a court order releasing them from any present and future claims (see the March 15, 1991, amendments, which follow).
The Province of Saskatchewan originally allowed for a waiver of pension credits in its Matrimonial Property Act effective January 1, 1987. Currently, the Family Property Act provides that "interspousal contracts" entered into on or after June 4, 1986, may provide that there be no division of CPP credits.
The Civil Code of Quebec (Division III Family Patrimony) was amended effective July 1, 1989, to allow for a waiver of a division of CPP credits. The QPP also contains its own credit splitting provisions and allows for waivers in certain circumstances. Questions about the QPP legislation should be addressed to La Régie des rentes du Quebec. If one or both parties have contributed to the CPP and the QPP during the period of cohabitation, CPP credits may not be split for a year of cohabitation unless the QPP credits are also split. Because of the complexities involved when a division is to be made under both the CPP and the QPP, please contact Service Canada to ensure that you and your clients understand the interaction of credit-splitting provisions under both plans.
An amendment to the B.C. Family Relations Act allows spouses to waive, in a marriage or other written agreement, their right to a division of CPP credits. The amendments apply to agreements entered into on or after June 4, 1986 but the legislation was only proclaimed in force July 1, 1995.
A similar amendment was made to the Alberta Family Law Act under the authority of the Canada Pension Plan Credits Statutes Amendment Act, 2004 for written agreements signed on or after June 4, 1986. However, the legislation was only proclaimed in force October 1, 2005.
CPP Amended Effective March 15, 1991 (remedial legislation for those adversely affected by the Preece decision)
A private member's bill led to a legislative amendment to the CPP. It authorizes the Minister to take remedial action to place individuals, who were denied a credit split due to written agreement or court order prior to June 4, 1986, in the position they would have been in had the division been approved. The provision permits individuals who were adversely affected by the Preece decision to take advantage of the CPP provisions for credit splitting.
This amendment does not apply if the agreement or order contains a provision that expressly mentions the CPP and indicates that there be no division of credits under the Act. Also, for the Minister to exercise discretion in these cases, all other criteria specified by the CPP respecting division must be met [Subsection 66(5)].
CPP Credits and their Division: How It Works
Accumulating CPP Pension Credits
The CPP maintains a Record of Earnings for each individual who has made contributions to it. The record lists the individual's earnings and contributions for each year during his or her contributory period (see Appendix 1 for the definition of Unadjusted Pensionable Earnings). Upon the divorce or separation of legal spouses or common-law partners, and the receipt by the Minister of required applications, information and documentation, credit splitting can begin. This is done by adding together all pension credits of both spouses or common-law partners for each year they cohabited, and dividing the credits equally between them. These credits are not actually paid to the individual, but are credited to the individual's Record of Earnings. This Record is used to determine the amount of current or future CPP benefits to which contributors, surviving spouses and/or dependent children may be entitled. A copy of the Record of Earnings can be requested by a contributor. Record of Earnings information cannot be released to a third party without the contributor's prior written consent. In other words, the beneficiaries of a credit split do not necessarily receive an immediate benefit, but there could be an effect on current or future pension entitlement. Often, under a credit split, one of the separated or former spouses, or common-law partners is likely to have an increase and the other separated spouse or partner a decrease in their current or eventual benefit amount. Credit splitting may even create entitlement where none existed previously.
Calculating the Period of Cohabitation for Credit Splitting
The period of cohabitation normally includes the years the couple lived together in a conjugal relationship. The period of cohabitation is calculated in full years. Credits for the first year of cohabitation are divided, even if the actual period of cohabitation is not the whole year. The last year of cohabitation is excluded from the period of division.
Certain months or years in a period of cohabitation are not divided:
- Any year in which the combined unadjusted pensionable earnings of the separated or former spouses or common-law partners does not exceed twice the year's basic exemption.
- Any period when one of the separated or former spouses or common-law partners was less than 18 or more than 70 years of age.
- Any month during which one of the separated or former spouses or common-law partners was receiving a retirement pension under the CPP.
- Any month that is excluded from the contributory period due to the disability of one of the separated or former spouses or common-law partners.
There are also statutory rules to address periods of separation of spouses/common-law partners [Section 55, Subsections 55.1(2) and (3), and 55.2(8) of the CPP; Sections 78 and 78.1 of the CPP Regulations].
Reconsideration / Appealing a Credit-Splitting Decision
Once a credit split is either approved or denied, both affected parties are notified in writing, and a 90-day appeal period starts to run from the date they receive the notification. There are three levels of appeal in the CPP:
- A request to the Minister for reconsideration [CPP, section 81].
- An appeal to a Review Tribunal established under the CPP [Section 82].
- An application for Leave to Appeal to the Pension Appeals Board [CPP, section 83].
Either separated or former spouse or common-law partner can request a reconsideration or appeal a credit-splitting decision. An individual who is dissatisfied with the decision of the Pension Appeals Board may file an application for judicial review in the Federal Court of Appeal. Also, if an individual believes that they have been denied a credit split based on the erroneous advice or administrative error of the Department, they may request a departmental investigation [Subsection 66(4)].
An applicant may withdraw a credit splitting application if the withdrawal request is made within 60 days of when the applicant was notified of a decision respecting the application. The non-applicant separated spouse or former common-law partner or the estate will be informed of the withdrawal in writing. This applies only to separated spouses or former common-law partners. A request for a division on divorce or annulment that occurred after January 1, 1987, may not be withdrawn. Once a credit split has been made, and any period allowed for withdrawal of an application has passed, the split is permanent, unless reversed upon appeal. The couple may remarry or live together again, but the division stands.
The "Monetary Value" of a Credit Split
The monetary value of a credit split is dependent upon several factors, including the:
- age of the credit-splitting applicant(s);
- length of the period of cohabitation while married or in a common-law relationship;
- earnings history of both separated or former spouses or common-law partners and the amount of CPP credits, where applicable, earned while they lived together;
- periods that can be dropped out of the contributory period of former spouse or common-law partners that are subject to the split. The CPP has provisions to help offset periods of low or no earnings during the contributory period. These includemonths in receipt of a CPP disability pension as well as periods of low or zero earnings while caring for a child under the age of seven. The CPP also has a "general" drop-out provision that automatically excludes 15 percent of the months of lowest earnings in the contributory period from the calculation of pension benefits; and
- chosen start date of the CPP retirement pension.
- The CPP benefit history of a contributor.
Given the complexities involved, the impact of credit splitting on the amount of any of the CPP benefits of separated or former spouses and common-law partners varies considerably from one case to another. For this reason, it is important that each case be evaluated in light of all the relevant facts of that particular case.
The following examples demonstrate the potential impact of CPP credit splitting in the event of a divorce, separation or end of a common-law relationship. It is important to bear in mind, however, that the impact of credit splitting and, ultimately, the amount of an individual's CPP retirement income depend on several factors. These include, but are not limited to, contributions made (where applicable) prior to and/or following a marriage or common-law relationship.
Christine and Daniel were married for 20 years. During those years, Christine stayed home to raise their three children while Daniel was employed. They divorced last year. Because she had no earnings, Christine had not paid into the CPP and would not have been entitled to any CPP benefits. However Christine asked us to split the CPP credits Daniel had earned during their marriage. At that time, she provided all the required information and documents. Christine now has a CPP account with her own credits. Now she will be entitled to a CPP retirement pension. If she becomes disabled, she may also be entitled to a CPP disability benefit, provided she meets the eligibility criteria. When she dies, her survivors may be entitled to CPP survivor benefits. If Christine starts working and contributes to the CPP, her CPP account will grow, and she will receive a larger benefit in the future.
Year's Basic Exemption and Year's Maximum Pensionable Earnings
A person contributes to the CPP in accordance with his or her earnings from salary or wages received as an employee or in accordance with his or her net earnings from self-employment as defined under the Income Tax Act. Contributions are made on annual earnings between a set minimum level and an annually adjusted maximum level. The minimum level, known as the Year's Basic Exemption (YBE), is frozen at $3,500. The maximum level, called the Year's Maximum Pensionable Earnings (YMPE), is adjusted each January, and is approximately equal to the average Canadian wage. The YMPE for 2008 is $44,900.
Because of the credit split, Daniel's credits are now reduced, but he is still eligible for CPP benefits. If Daniel is already getting a CPP benefit, his benefit payments will continue, but they will be reduced. If he continues to work after the credit split, he will increase his own CPP credits.
Hiroko and Benoît lived together for 20 years. Hiroko worked outside the home and earned less than Benoît during the time they were together. Their common-law relationship ended last year. At that time, Hiroko applied for a credit split, providing all of the required documents. The request was approved and their credits were split. When Hiroko applies for a CPP benefit, her benefit calculation will be based on her earnings as well as those she received from the credit split. Benoît's CPP credits were reduced with the credit split, but he is still eligible for CPP benefits. If Benoît is already getting a CPP benefit, his payments will continue, but they will be reduced. If he continues to work after the credit split, he will increase his own CPP credits.
Note: Where both parties are in receipt of a CPP benefit, a decrease in one person's benefit may not correspond to an equal increase in the other party's benefit.
Credit Splitting Administration
If you have any questions with respect to credit splitting, please contact Service Canada at 1-800-277-9914. Offices are located in most major centres across Canada and can provide applications and documentation for your clients about credit splitting. Applications can be submitted either in person or by mail to your clients' nearest Service Canada centre. Certified true copies or originals of source documents (e.g. birth certificates and divorce papers) are required and subsequently returned. Although an application is not required in cases of divorce or legal annulment on or after January 1, 1987, its use is normally suggested to ensure that the required information is provided. You and your clients should be aware of the time involved in processing a credit split. There is a legal requirement to contact the non-applicant spouse or partner, to allow this person to contest the division or the periods of cohabitation in question. When it is clear that a division may proceed, both spouses or partners are notified of the change to their respective Record of Earnings. An application or request for a credit split is approved in the month of receipt, and any resulting benefit increase is effective the following month. Any benefit decrease may only occur once the Record of Earnings is actually amended.
Credit Splitting versus Pension Sharing
Clients often confuse credit splitting and pension sharing (referred to as an assignment of retirement pension in the CPP legislation). Pension sharing is a provision where spouses or common-law partners who are at least 60 years of age and who have applied for their CPP retirement pension(s) may share the CPP retirement pension(s) earned during the years of their continuing marriage or common-law relationship. Pension sharing does not increase or decrease the total amount of retirement benefits paid to a couple but may result in tax savings. It should be clearly understood that pension sharing ceases upon the death of a spouse or partner or if the couple divorces, separates or ends their common-law union. In comparison, credit splitting permanently alters the Record of Earnings, even after the death of a former spouse or common law partner.
How Lawyers Can Facilitate the Administration of the Credit-Splitting Provision
Individuals often hear about credit splitting from friends and colleagues. They will often approach you as their solicitor to explain the ramifications of the provision. You can most help your clients by:
- helping them understand what credit splitting involves and how it might affect their retirement income. Your clients should understand that credits are not actually paid to individuals but rather applied to their Record of Earnings, which, in turn, determines the amount of current or future CPP entitlement;
- ensuring that your clients are aware of the rules related to CPP credit splitting, including the time limits for applying, where applicable, and the conditions of eligibility (see Table 1); and
- referring your clients to a Service Canada Centre to help ensure that they understand:
- the range of CPP benefits and provisions (including pension sharing) and how the application of credit splitting might interact with other features of the CPP (e.g., general and child-rearing provisions); and
- their potential entitlement to other public pension benefits, such as Old Age Security benefits.
In cases where your clients express an interest in waiving their right to CPP credit splitting:
- remember that a waiver of CPP credits in a written agreement is only binding on the
- Minister if there is provincial legislation that allows for such a waiver; and
- in provinces where legislation makes a written agreement binding on the Minister:
- the waiver provision must expressly mention the CPP and the parties' intention that there be no credit split; and,
- your clients should understand the future ramifications of giving up their right to divide these credits.
In cases where your clients apply for CPP credit splitting, ensure that they:
- understand the process and possible time limits; and
- provide the required information and documentation (see Table 2 on page 14).
Important Addresses and Numbers
For more information on credit splitting
For contributors to the Quebec Pension Plan
La Retraite Québec
PO Box 5200
Quebec, Quebec G1K 7S9
La Retraite Québec
For information on Appeals
Office of the Commissioner of
Canada Pension Plan/Old Age Security
PO Box 8250, Station "T"
Ottawa, ON K1G 5S5
Pension Appeals Board
PO Box 8567 Station "T"
Ottawa, Ontario K1G 3H9
Unadjusted Pensionable Earnings - Section 53, Canada Pension Plan
Subject to section 54, the unadjusted pensionable earnings of a contributor for a year are an amount equal to
- the aggregate of
- contributory salary and wages for the year, and
- his contributory self-employed earnings for the year in the case of an individual described in section 10,
- the aggregate of
- his earnings on which a contribution has been made for the year under this Act, calculated as the aggregate of
- his salary and wages on which a contribution has been made for the year, and
- the amount of any contribution required to be made by the contributor for the year in respect of the contributor's self-employed earnings divided by the contribution rate of self-employed persons for the year,
- his earnings on which a contribution has been made for the year under a provincial pension plan, calculated as the aggregate of
- such amount is determined in prescribed manner to be his/her salary and wages on which a contribution has been made for the year by the contributor under a provincial pension plan, and
- the amount of any contribution required to be made by the contributor for the year under a provincial pension plan in respect of the contributor's self-employed earnings divided by the contribution rate for self-employed persons for the year,
- his basic exemption for the year, or
- his earnings on which a contribution has been made for the year under this Act, calculated as the aggregate of
- his maximum pensionable earnings for the year, whichever is the least, except where the amount calculated as provided in paragraph a) is equal to or less than the amount of the contributor's basic exemption for the year, his unadjusted pensionable earnings for that year shall be deemed to be zero.
|Situation||Application Required||Minimum Period of Cohabitation||Minimum Period of Separation||Time Limit for Application|
|Divorce or annulment granted prior to January 1, 1987||Yes||36 consecutive months||N/A||36 months from date of divorce or annulment*|
|Divorce or annulment on or after January 1, 1987||No||1 year||None||None|
|Separation of legally married spouses on or after January 1, 1987||Yes||1 year||1 year||None|
|Separation of legally married spouses on or after January 1, 1987 and spouse deceased||Yes||1 year||1 year||3 years from date of spouse's death|
|Separation of common-law partners on or after January 1, 1987||Yes||1 year||1 year||4 years from date of separation*|
|Separation of common-law partners on or after January 1, 1987 and former partner deceased||Yes||1 year||Can be less than 1 year because of death||4 years from date of separation|
|Separation of same-sex common-law partners on or after July 31, 2000||Yes||1 year||1 year||4 years from date of separation*|
|Separation of same-sex common-law partners on or after July 31, 2000 and former partner deceased.||Yes||1 year||Can be less than 1year because of death||4 years from date of separation|
- * Former spouses or common-law partners may provide a written statement agreeing to waive the application time limits (see pages X and Y).
- Note: See page X for effect of written agreements and court orders
|Information and Evidence Required||Divorce or Annulment Granted on or after January 1, 1987||Separation of Legally Married Spouses||Separation of Common-Law Partners|
|SIN for both spouses/common law partners**||Yes||Yes||Yes|
|Proof of age for applicant spouse||Yes||Yes||Yes|
|Age of non-applicant spouse/common law partners||Yes, if possible||Yes, if possible||Yes, if possible|
|Continuity of name||Yes||Yes||Yes|
|Last known place of residence of spouse/common law partners||Yes, if known||Yes, if known||Yes, if known|
|Proof of date when couple started living together||Yes, if common-law union prior to marriage||Yes, if common-law union prior to marriage||Yes|
|Proof of marriage||Yes||Yes||N/A|
|Proof of date last lived together||Yes||Yes||Yes|
|Proof of dissolution of marriage||Yes Decree absolute / judgment of divorce or nullity||N/A||N/A|
|Written agreements/Court Orders||Yes||Yes||Yes|
|Proof of death||No||Yes, if one spouse died after separation||Yes, if one partner died after separation|
- * A credit splitting application form is suggested to ensure that appropriate information and documentation is included.
- ** If one of the spouses or common law partners does not have a social insurance number, one can be obtained from a Service Canada office or from embassies or consulates abroad.
- Note: Where necessary, the applicant may be asked to supply additional information or evidence to meet CPP documentation or cohabitation requirements.
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