By splitting income with a spouse, the higher income taxpayer can reduce net income and taxable income. The benefits of this include
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.
Attribution Rules - keep in mind that if one spouse is added to the investment account of another spouse, all income and capital gains from the account must still be claimed by the original account owner.
See our articles on different methods of 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
Family Tax Cut (FTC) - 2014/2015 only - non refundable tax credit for spouses with children under 18, "notional" income splitting
Other income-splitting ideas:
Includes
- Claiming tax credits and deductions with a spouse
- Reporting/allocating investment income earned in a joint account
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.
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.