New income splitting rules were introduced by the federal government on January 1, 2018. In an article in Les Affaires, Luc Lacombe, Tax Partner at Raymond Chabot Grant Thornton, explains the impact of those new measures.
Those measures alter several aspects of the current law and impact, particularly, the benefits for incorporated professionals and entrepreneurs.
Luc calculated the tax savings that incorporated professionals could earn if they split their income with a spouse and two children through a corporation. “(…) In total, the tax authorities can only recover 28.8% of the $250,000”, he observed. “This structure generates entirely legal tax savings of $40,000! Up until last year, the only thing to keep in mind was to ensure that the money paid to family members as dividends was not returned to the incorporated professional or entrepreneur.”
Use of this practise exploded in the early 2000s when the government granted tax credits to corporations and gradually increased the tax on high income individuals. The gap also increased when incorporation was permitted in several professions, thereby promoting income splitting strategies. Today, numerous advantages have been withdrawn.
Luc states: “I believe without a doubt that this reform targets incorporated professionals, starting with doctors. Through its reform, the government almost entirely cuts off their access to income splitting (among others).”
To learn more about these new measures, read the article (in French only) published in Les Affaires on March 10, 2018.