Income splitting: The facts

Income splitting - The facts

Everything you need to know about income splitting

Income splitting is an effective way to reduce your family tax bill. It involves the transfer of income from a family member in a high tax bracket to one in a lower tax bracket. There are tax rules, known as the attribution rules, that have been enacted to prevent the potential tax savings that may be realized from income splitting. However, if properly structured, income-splitting strategies can save significant tax dollars and leave your family with more after-tax funds.

This guide provides an overview of the attribution rules, details on what income-splitting techniques are restricted by these rules, and some potential tax saving strategies for individuals permitted by the Income Tax Act (Canada).

This guide answers many questions to help Canadians use income splitting properly and, in turn, maximize their families’ after-tax dollars. Some of the information includes:

  • what the attribution rules are
  • when the attribution rules don’t apply, including:
    • marriage breakdown
    • non-residents
    • capital gains for related minors
    • transfers to children over age 17
    • business income
    • interest-bearing loans
  • other income-splitting strategies, including:
    • child tax benefits
    • CPP benefits
    • pension credit splitting
    • spousal registered retirement savings plans (RRSPs)
    • family budgeting

… and much more!

Helping Canadians make informed decisions

You work hard and want to keep as much of your hard-earned income as possible. With planning, a family unit can use income-splitting strategies to do just that by increasing the family’s after-tax income.

You may have a lot of questions when it comes to implementing some of these income-splitting strategies properly. Work with your advisor to determine your goals and sources of income, and they can help you increase your family’s tax savings through income splitting.

Advisors, share this guide with your clients to help answer any questions and assist them with appropriate income-splitting strategies based on their situation and needs.

This communication is published by Manulife Investment Management.  Any commentaries and information contained in this communication are provided as a general source of information only and should not be considered personal investment, tax, accounting or legal advice and should not be relied upon in that regard. Professional advisors should be consulted prior to acting based on the information contained in this communication to ensure that any action taken with respect to this information is appropriate to their specific situation. Facts and data provided by Manulife Investment Management and other sources are believed to be reliable as at the date of publication.

Certain statements contained in this communication are based, in whole or in part, on information provided by third parties and Manulife Investment Management has taken reasonable steps to ensure their accuracy but can’t be held liable for such information being inaccurate. Market conditions may change which may impact the information contained in this document.

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Tax, Retirement & Estate Planning Services Team

Tax, Retirement & Estate Planning Services Team

Manulife Investment Management

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