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Income Splitting

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Personal Income Tax -> Income Splitting

Income Splitting

Why split income with a spouse?

By splitting income with a spouse, the higher income taxpayer can reduce net income and taxable income.  The benefits of this include

bullet reducing the taxpayer's marginal tax rate (and possibly increasing the spouse's marginal rate)
bullet reducing or eliminating OAS clawback
bullet creating a pension tax credit for the spouse (with pension splitting)

If both spouses are in the same tax bracket, income splitting will not provide the benefit of a reduction in the marginal tax rate.  However, pension splitting may still be useful if it creates or increases a pension tax credit for the spouse.

See our articles on different methods of income splitting:

Pension income splitting

Sharing your CPP retirement pension with a spouse

Transfer dividend income to a spouse - In some circumstances, Canadian dividend income may be included in the income of either spouse.

Transfer capital losses to a spouse - using superficial loss rules

Spousal RRSPs and RRIFs, and attribution rules

Lend money to your spouse or child

Other income-splitting ideas:

Should my spouse and I file our tax returns together, or separately?

Includes

bullet Claiming tax credits and deductions with a spouse
bulletOther investment income earned in a joint account

Split income by employing your spouse or child

If you are self-employed, you can employ your spouse or your children.  The spouse or children must be paid a reasonable wage for services performed.  See also Don't pay unnecessary unemployment insurance premiums on our Small Business page.

Have the lower income spouse invest all earnings

If both spouses are earning income, but one is in a much higher tax bracket, the lower income spouse could invest all earnings, while household and other expenses are paid by the higher income spouse.

 

Revised: February 19, 2014

 

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