Here are your income splitting options now that the private corporation avenue is dead
Income splitting, the practice of small business owners giving dividend income to family members, regardless of their employment status within the company, has been curtailed due to new tax regulations that went into place the first of the year. This increases the tax burden on small businesses. There are however, some ways to continue doing this. If you do it correctly you can income split on your personal income or to spouses and children without breaking the new tax laws.
- Income splitting is where someone with more money in the family transfers some to someone with less money to help with taxation burdens and make everyone a bit more level.
- Seniors can still split eligible pension income with a spouse or partner through annuity-type payments from an employer-sponsored registered pension plan, RRIF or Life Income Fund, or by contributing to a spousal RRSP.
- Spousal income splitting can be done through a prescribed rate loan strategy whereby the funds are loaned to your spouse or partner to invest and excess returns are then split. A modified version of this will work to income split interest or dividend income with your kids.
“There are still a bunch of perfectly legal income-splitting strategies you may want to consider for this tax year.”
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