{"id":3255,"date":"2021-12-29T01:02:04","date_gmt":"2021-12-29T01:02:04","guid":{"rendered":"https:\/\/filingtaxes.ca\/?p=3255"},"modified":"2021-12-29T01:02:04","modified_gmt":"2021-12-29T01:02:04","slug":"tax-on-income-splitting-tosi-in-canada-2024","status":"publish","type":"post","link":"https:\/\/filingtaxes.ca\/tax-on-income-splitting-tosi-in-canada-2024\/","title":{"rendered":"Tax on Income Splitting (TOSI) in Canada - 2020"},"content":{"rendered":"\n

No one wants to pay more taxes than they have to, that is why many Canadian taxpayers might choose to alleviate some of the tax burdens through a practice called \u201cIncome Splitting\u201d.<\/p>\n\n\n\n

Canada Revenue Agency\u2019s (CRA) definition of Income Splitting<\/strong><\/h2>\n\n\n\n

Income sprinkling \u2013 sometimes referred to as \u201cincome splitting\u201d \u2013 is a strategy that can be used by high-income owners of private corporations to divert their income to family members with lower personal tax rates.<\/p>\n\n\n\n

In simple words, income splitting is the transferring of income from a high-income family member to a lower-income family member to minimize the overall tax paid by the family. Since the Canadian tax system has graduated tax brackets<\/a>, by having the income taxed in the lower-income earner\u2019s hands, the overall household\u2019s tax liability can be reduced.<\/p>\n\n\n\n

Income Splitting Eligibility<\/strong><\/h2>\n\n\n\n

At the federal level, you can continue to split income with your spouse or common-law partner, regardless of your age, as long as the retirement income is eligible. To qualify to split income, you and your spouse or common-law partner must reside in Canada and live together. The couple must live together for at least one year and not have been separated for more than 90 days at the end of the tax year. However, you can live apart if the reason is related to work, school, or medical necessity.<\/p>\n\n\n\n

Income Splitting Rules<\/strong><\/h2>\n\n\n\n

Income splitting is an electable action that you opt-in every year you file your taxes. <\/p>\n\n\n\n

Recent changes to income tax rules expand the application of the Tax on Split Income (TOSI). Previously, TOSI only applied to split income of individuals under 18 years old. Now, TOSI applies the highest personal marginal tax rate (currently 33%) to any split income, regardless of age. This means income splitting with adult children or spouses is now subject to TOSI.<\/p>\n\n\n\n

The goal of expanding TOSI is to limit income tax benefits when the recipient has not substantially contributed to a family business. The federal government has reduced corporate tax planning options, but some remain to mitigate tax liability. Taxpayers should understand the new TOSI rules and consult a tax professional about permissible income splitting and tax reduction strategies.<\/p>\n\n\n\n

Income qualifying for TOSI<\/strong><\/h2>\n\n\n\n

The TOSI rules will potentially apply if business owners or their family members earn the income types mentioned below:<\/p>\n\n\n\n