Income splitting is the practice of directing corporate income to family members in lower tax brackets to reduce the household’s overall tax burden, a strategy significantly constrained by the TOSI rules since 2018.
Before 2018, private corporations were commonly used to pay dividends to adult family members, including spouses and adult children, regardless of their involvement in the business. The Tax on Split Income rules significantly curtailed this by applying the top marginal tax rate to certain income received by related individuals who do not meet specific involvement, ownership, or exclusion tests. What remains available includes reasonable salary for family members genuinely working in the business, dividends in limited circumstances where TOSI exclusions apply, and capital gain planning through a properly structured family trust. Planning still exists, but it requires more precise structuring and documentation than it did before 2018.
See also: Tax on Split Income (TOSI) · Family Trust · Salary vs DividendsIncome splitting strategies that worked before 2018 may not work today without a structure review. See how Wefinx approaches tax planning.