Revised Income-Splitting Rules Released

On December 13, the federal government released its revised proposals on income-splitting.

If passed into law, the rules will be effective as of the start of 2018.  While it will take time to fully analyze the rules, the following general points can be made at this point.

  • The proposals will not apply to any dividends paid during 2017.  If passed into law, the proposals apply only as of January 1, 2018.
  • Revisions to corporate structures do not need to be finalized prior to the end of 2017.  Corporate structures can be revised in early 2018 in order to take the proposals into account.
  • The new rules specifically target professional corporations and corporations that derives 90% or more of their income from the provision of services. A professional corporation is one that carries on the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor.
  • The new rules will not apply to an individual over the age of 24 who earns income from a non-professional corporation that earns less than 90% of its income from the provision of services, provided that the individual has at least a 10% interest in the corporation.  The 10% interest has to include at least 10% of the voting shares and at least 10% of the value of all issued shares.
  • If a person is 65 years of age and over and has been active in the corporate business in the past, that person can split income with his or her spouse (even if the person has retired from the business).  This will be important for retirement plans.
  • If an adult works in the business for an average of at least 20 hours per week, the income splitting rules will not apply to amounts paid to that adult.
  • The rules will no longer be extended to nephews, nieces, uncles and aunts.

Further analysis of specific aspects of these new proposals will follow.

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