04/15/2026
The power of income splitting: Keeping more in the family
For business owners, taxes can feel like an uphill battle. But income splitting offers a powerful way to ease the burden and keep more wealth within your family. How can you make it work? It starts with understanding the strategies—and the rules.
Here are three key ways to approach income splitting:
1. Pay salaries—but stay reasonable
If family members actively work in your business, paying them a salary can reduce your taxable income while compensating them for their contributions. But here’s the catch: the salary must align with the work performed. For example, you can’t pay your spouse an executive salary for handling occasional administrative tasks. CRA rules require salaries to be “reasonable,” which means comparable to what you’d pay a non-family employee for similar work.
2. Use dividends effectively
If your spouse or adult children are shareholders or beneficiaries of a family trust that owns shares, they can receive dividends. This can be a tax-smart move since dividends are often taxed at a lower rate in their hands than in yours. To qualify, family members must work an average of at least 20 hours per week in the business. It’s also worth noting that children under 18 cannot benefit from this strategy due to rules on split income.
3. Incorporate a family trust
A family trust offers flexibility and control. It allows you to allocate dividends or other income to specific beneficiaries—like your spouse or children—based on their needs or lower tax brackets. This can be particularly useful if you want to maintain control over the business while still spreading income among family members. Trusts also play a critical role in succession planning and can help protect your business from marital property claims.
Let’s discuss your options
Income splitting rules are more complex than ever, but the potential benefits are worth exploring. Whether it’s through salaries, dividends, or a family trust, these strategies can help reduce your family’s overall tax bill and strengthen your financial legacy.
Curious about how income splitting could work for your family? Let’s connect to explore your options and create a strategy tailored to your business goals.
