25
Jul
Our Summer Tax Planning Series continues with a focus on income splitting, a valuable tax planning strategy for families and partnerships in Central Ontario. Understanding how to distribute income among family members or business partners can significantly reduce your overall tax burden.
The Basics of Income Splitting
Income splitting involves transferring a portion of income from a higher earner to a lower earner within a family or partnership, thereby lowering the overall tax rate on that income.
Methods of Income Splitting
Paying Family Members: Employing a spouse or children in your business and paying them a reasonable salary for their work.
Family Trusts: Utilizing trusts to distribute income among family members in a tax-efficient manner.
Regulatory Considerations
The Canadian tax system has specific rules to prevent excessive income splitting for personal gain, such as the Tax on Split Income (TOSI) rules. It’s crucial to adhere to these regulations to avoid penalties.
Long-Term Planning
Effective income splitting can lead to significant long-term savings, aiding in retirement planning or educational savings for children.
While income splitting is a powerful strategy, it requires careful planning and compliance with tax laws. Done correctly, it can provide substantial financial benefits.
Interested in learning more about how income splitting can benefit you? Contact Keenans Accounting Service today at (705) 526-7628 or visit our website. Let us help you strategize for success.