Canada has a progressive taxation system attached to individuals. That means that households where the partners earn radically different incomes will pay more tax. Income-splitting strategies aim to reduce that household tax bill by spreading out taxable income. There are multiple ways that any Canadian can do that. However, the benefits are greatest for high-income households. They can mesh those strategies with other strategies available to incorporated business owners. Join Dr. Zhou of Breaking Bad Debt and myself to learn how a household can save thousands of dollars per year through a comprehensive income-splitting plan.
Click the image below to go straight to the video. It is time-stamped with different sections. Or click a section of particular interest in the overview to jump straight there. Note that a table and some narrative at 18:00 were incorrect. The corrected information is in this post.
0:00 – Intro
2:17 – What is Income Splitting?
4:12 – Hiring a Spouse & Family Members
6:29 – Income Split in a Corporation (Salary)
9:23 – Dividend Splitting in a Corporation
10:06 – Tax on Split Income (TOSI) rules
12:56 – Efficient ways to take out money from a Corporation
18:01 – Optimizing How much Salary to Pay Spouse. I made a mistake in this section. The correct information is in my blog post about it.
21:52 – Attribution Rules for Income Splitting Investments
25:38 – TFSA to Income Split
26:56 – Spousal RRSP
29:28 – Preserving Low-Income Spouse Income to Invest
31:45 – Spousal Loans
33:46 – HELOCs for Low-Income Spouse to Invest
37:15 – Case: How Mark Income Splits with his wife
39:47 – What happens in Divorce?
40:22 – Summary
Related Loonie Doctor Posts
Income Splitting Strategies For Canadians
Spreading out income between family members can drastically reduce your tax bill and mean more money for your family.
There are short-term, intermediate-term, and long-term approaches to doing this. Even after the recent attack on income-splitting.
You May Want To Be Sleeping With Your Billing Agent
Hiring a family member and paying them a fair wage is a great way to income split.
Not only do you decrease money going to the tax collector. You play less to outside agents. No one will care whether you get the maximum billable amounts more than you and your spouse.
Optimal Corporate Income-Splitting Strategies
Paying a spouse a salary is a great way to income split. However, it is limited to market rates.
Dividends help to keep a corporation tax efficient and are not limited by market rates. However, there are other rules to deter you from using them to income split. If you qualify for an exception, then it is a boon.
Learn about the factors to balance in choosing an optimal salary and dividend mix to income split using your corporation. It is like learning to ride a bike. Built for two.
Income Splitting & The Attribution Rules
As you build a larger portfolio, the income tax burden will also increase. One longer-term income-splitting strategy is to have the tax-exposed income attributed to a spouse in a lower tax bracket.
There are attribution rules to prevent us from simply gifting or loaning money to do that. Learn how they work – and how you can build your lower-income spouse’s hoard legitimately.
