Tax Articles
Tax Savings are within Splitting Distance
Brampton Board of Trade
Mark Smith
While tax saving opportunities for business owners may appear to be fewer and farther between these days, there is one “family” of strategies that every owner should look into: income-splitting.
Splitting income refers to shifting income from the hands of one family member in a high tax bracket to another in a lower tax bracket so that the family pays less income tax. When you operate your own business, there are some special income-splitting strategies that can offer you and your family valuable tax savings.
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When you hire your spouse and/or children to work in your business, you can pay them a reasonable salary or hourly wage. If they have no other source of income, they can receive about $8,000 without having to pay income tax. As well, receiving income makes them eligible to make RRSP and CPP contributions.
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If your spouse can provide money, time, or skills to your unincorporated business, by making him or her a partner, you can share the income.
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When you appoint your spouse as a director of your corporation, the company can pay him or her a director’s fee for services such as attending directors’ meetings, approving financial statements, and declaring dividends.
Major tax savings are within splitting distance. Be sure to discuss with your accountant what income-splitting strategies will work best for you and your family.
Mark Smith is a partner of BDO Dunwoody LLP (www.bdo.ca). One of Canada’s leading accounting firms, BDO helps entrepreneurs and family businesses succeed. If you have questions about this article or you would like to receive BDO’s “Tax Factor” newsletter, contact Mark at 905-270-7700 or marksmith@bdo.ca.
