Income splitting for business owners

Redirect profits to family members in lower tax brackets

By Bruce Ball | August 3, 2012 | Last updated on September 15, 2023
3 min read

  • Pay your spouse and children a salary

    If your spouse or children work in your business, consider paying them a salary. The salary must be reasonable given the services performed. A good rule of thumb is to pay them what you would have paid a third party for the same services.

  • Pay a guarantee fee to a family member

    If your spouse or another family member is required to pledge assets to the business or guarantee a business loan, he or she can be paid a reasonable fee by the business. The fee will also help establish deductibility of the loan as a capital loss should it become a bad debt.

  • Loan funds to your spouse

    Generally speaking, only income from property is subject to the attribution rules. If your spouse has a promising business venture, you can provide interest-free financing without penalty.

    If the venture is risky, an interest-free loan would not qualify for capital loss tax relief should the venture fail.

  • Utilize the benefits of incorporation

    One powerful technique involves the use of a corporation to carry on business.

    By incorporating the company, family members can own an interest in your business. A tax saving can be achieved if after-tax corporate income is paid to low-income family members as a dividend.

Bruce Ball, CA, is a national tax partner at BDO Canada LLP.

This article was originally published on capitalmagazine.ca.

Bruce Ball

  • Pay your spouse and children a salary

    If your spouse or children work in your business, consider paying them a salary. The salary must be reasonable given the services performed. A good rule of thumb is to pay them what you would have paid a third party for the same services.

  • Pay a guarantee fee to a family member

    If your spouse or another family member is required to pledge assets to the business or guarantee a business loan, he or she can be paid a reasonable fee by the business. The fee will also help establish deductibility of the loan as a capital loss should it become a bad debt.

  • Loan funds to your spouse

    Generally speaking, only income from property is subject to the attribution rules. If your spouse has a promising business venture, you can provide interest-free financing without penalty.

    If the venture is risky, an interest-free loan would not qualify for capital loss tax relief should the venture fail.

  • Utilize the benefits of incorporation

    One powerful technique involves the use of a corporation to carry on business.

    By incorporating the company, family members can own an interest in your business. A tax saving can be achieved if after-tax corporate income is paid to low-income family members as a dividend.

Bruce Ball, CA, is a national tax partner at BDO Canada LLP.

This article was originally published on capitalmagazine.ca.