New Income Splitting Rules for Canadian Corporations (2018) Watch Video
Allan Madan, CPA, CA
Do you own a Canadian private corporation and want to pay dividends Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
Can you please share a link to canada.ca website that talks about the new rules?
Hi Pramit, see this link from CRA’s website for further details:
https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html
Nice information, Thanks
Can you please clarify bit more about following Non-Service Businesses stuff.
**********************************************************
canada.ca website says Excluded Shares: shares of a corporation owned by an individual are excluded shares where: less than 90% of the corporation’s business income was from the provision of services and the corporation is not a professional corporation;
and your website says: Non-Service Businesses: Businesses that derive more than 90% of their income by selling anything other than services are exempt from the new dividend rules.
**********************************************************
Hi Sam,
You are correct. If less than 90% of the corporation’s income was from services, then the shares are excluded, and so TOSI will not apply to the dividends paid on those shares. For example, if a company’s revenues are 50% from the sale of goods and 50% from the provision of services, then the shares will be excluded shares. This is because less than 90% of the corporation’s income was from services.
Do the new rules change anything for the case where dividends are paid out to the corporate owner (not family members)?
Hi Gill,
The new rules do not impact dividends paid out to the owner running the business.
Will dividend received by non-voting shareholders (adult children over age 25) of a private corporation that owns 1 rental property in Toronto be subject to the highest tax rate under the new rule?
Hi Marg,
Yes, dividends paid to adult children from a Canadian Private Corporation will be subject to the highest personal tax rate under the new rules, unless the adult children (25 or older) have made a substantial investment in the business, and the amount of the dividends paid are reasonable in relation to the amount invested.
I read an article that said that if you are a senior then you can still income split dividends with your spouse.Is that the case?
Hi Randy,
Yes, if you are 65 or older and own a Canadian private corporation, you can pay dividends to a spouse who is also a shareholder of the corporation without restrictions.
Iam an independent IT consultant who has incorporated my Business. Along with me, my spouse is marked as director in my business. Will sending dividend to her is taxable in a new rate or old rate..?
Hi Shiva,
A director cannot receive a dividend. Only shareholders can receive dividends. Dividends paid by a Canadian corporation on or after January 1, 2018 are subject to the new rules.
Are dividends paid to a spouse who owns non-voting shares in a non professional corporation considered excluded if the spouse is less than 60 years old but the other spouse is older than 65?
Yes, because one spouse (whom I’m assuming is the principal business owner / operator) is retired (65 or older) and so dividends paid to the other spouse (non-voting shareholder) are excluded from TOSI.
Hi, I understand the above but I see nowhere explained what happens with salary. Supposed I don-t want to pay a dividend but rather a salary to my spouse. What are the rules in that case?
Hi Waiter,
The new income splitting rules do not impact salaries/wages paid to a family member. The salary/wages paid to a family member must be reasonable based on the type of work, education of the family member and difficulty of the job.
Hi Allan,
Is it right to say if dentist pays dividend to his wife irrespective to the fact that the share she owns has voting right or not would attract TOSI and would be taxed at higher rate. reason : Dentist has a professional corporation.
Hi Nayay,
Yes, the dividend paid to your spouse, in this case, will attract TOSI, unless the amount of the dividends paid to your wife are reasonable based on the work she performs for the business, and so long as she is working at least 20 / hours per week on average in the business.
Amazing article. Way better examples then I have seen elsewhere.
To make it all about me.
I am a truck driver and have a corporation. All my contract work get pays into the corporation. And I pay myself a salary. But with the new rules can I pay my wife a dividend. She is listed as 50% owner. She Does only 1 hour of paper work a month and there was basically no startup capital put in to this corporation.
Can the corporation pay her anything?
Part 2.
We own a 2nd Ontario # corporation that rents out generators and other equipment to the trucking industry but also some other customers (painters , carpenters)
She is running all the sales and rental work here but this is an even smaller side business/corporation for us and is about 1-2 hours of work a month top.
So far the money has just been accumulating inside the corporation.
Can I pay her from this one?
Thanks in advance.
Hi Moe,
You can pay your wife a dividend, so long as:
1. She is a shareholder; and
2. The dividends paid to her are reasonable based on the work she is performing and the number of hours she is working.
For example, if your wife is providing administrative support for 2 hours per week, and she is a shareholder, then a reasonable dividend amount would be $50 per week (2 hours x $25 / hour).
Remember to keep timesheets so that your wife can prove the # of hours worked for each company.
Hi,
Great info on your web site. thanks for sharing.
Could you please tell me when professional corporation has no longer active income (the doctor retired) but there are assets inside the Corp. Can he pay normal non eligible dividend to himself and his kids?
Thanks
Alex
Hi Alex,
The new income splitting rules generally prohibit dividends paid to family members that are not actively involved in the business. However, you (and your wife if she is a shareholder) can receive eligible dividends as you both are retired. Eligible dividends are paid from the corporation’s GRIP balance.
I’d like to know if the income splitting rules apply in my case. I reside in Canada and own 1% of a family business, my parents and siblings own 49%, and aunts uncles and cousins own the other 50%. The business is located in the USA and all of the family members (except me) are also in the USA. I’m only questioning this based on location of business; the income splitting rules would otherwise apply.
Hi Pine,
The Canadian income splitting rules do not apply to US companies.