Income Splitting Strategies For Canadians

The term "income splitting" refers to the transfer of taxable income from a higher-income family member to a lower-income family member to reduce the family's overall income tax payable. The advantages of income splitting are clear: lower-income earners pay tax at a rate of 20 to 26 per cent, whereas higher-income earners may pay 47 to 54 per cent, depending on the province or territory of residence.

With the Family Tax Cut, couples with minor children had finally experienced a taste – albeit a small one – of what it was like to split employment income between spouses. The Family Tax Cut was a tax credit that provided up to $2,000 in tax savings. However, the credit was repealed for 2016 and later years. Many families wonder why Canadians don't have the same opportunities to split income as our American friends who are permitted to file joint spousal returns to effectively split their income.