What is Income Splitting?
Income splitting is the strategy of moving income from a family member in a higher personal income tax bracket to a family member in a lower personal income tax bracket. For instance, the earned and passive income of one spouse is fictionally attributed to the other spouse with the help of this tax strategy.
Still not sure what it means? Make sure to read the entire article to understand income splitting in detail. Don’t forget to click here and book a FREE consultation with our experts and discuss how to leverage this tax strategy for your business.
Benefit of Income Splitting
Income splitting allows you to share income with family members and is utilized to reduce the overall family tax burden. In Canada, there are various tax brackets depending upon the income of people. A low-income spouse will fall in the lower income tax bracket, and inversely a higher income spouse will fall in the high-income tax bracket. With the help of income splitting, the spouse falling in the high-income tax bracket can move down, hence paying lesser tax. This helps them save more of their income.
While Income Splitting has certain benefits, it can be extremely difficult to utilize them without the help of an experienced professional. We have over 3 decades of experience helping business owners such as yourself leverage these strategies to retain more of your hard-earned income. Click here to get in touch with us and discuss how we can help you organize finances, create wealth, and transform that wealth into a legacy!
Corporate Income Splitting
The existence of a separate corporate entity that receives business income allows that corporation to distribute its revenue in more ways than an individual can. The controlling registrant/director of the corporation is allowed to issue voting, non-voting, non-equity shares of the Corporation to family members (defined broadly to include blended families), being children, parents, and spouses. The corporation can thus allocate its business income to employees (including the controlling registrant, family members, and others) as salary and issue dividends to any shareholder of the company.
One of the most common questions we are asked is, “Should I pay myself through Salary or Dividends?” Both of these methods have certain advantages and disadvantages. Click here to read our article comparing both of these methods in detail.
Tax on Income Splitting (TOSI)
The cumulative effect of such income splitting on the taxes payable (in both the long and short term) by the controlling director, the corporation, and those shareholders depends on many factors. It is essential that tax advice from an accountant or lawyer should be sought to ensure you implement the optimal tax strategy. The tax rules are complicated and splitting income could result in more tax being levied. Specifically, the new rules on tax on split income (TOSI) could have negative impacts if not taken into account during tax planning.
This is why it’s crucial to hire a knowledgeable representative who can help you navigate through these complicated tax regulations. Here at CPA4IT, we always stay up-to-date on the ever-changing tax laws. We also attend and speak at some of the largest accounting conferences in the world to ensure that we are up to speed on the latest accounting practices which can help you organize finances, create wealth, and transform that wealth into a legacy!
Do you want to Leverage Income Splitting?
While income splitting can be useful to save more of your hard-earned money, effectively leveraging this technique can be quite complicated without the help of an experienced professional. But don’t worry, CPA4IT has got you covered! Our unique blend of decades’ worth of experience coupled with cutting-edge technology provides our clients with financial peace of mind.
Looking to learn more about our services? Make sure to click here and book a FREE consultation with one of our expert team members to discuss this further.
