Income Splitting

Income Splitting – Income splitting is a tax planning technique used to minimize overall tax liability by distributing income among family members or related entities. By allocating income to individuals in lower tax brackets, the total tax paid can be reduced legally. How it works: Transferring income-producing assets: e.g., giving shares or investments to family members in lower tax brackets. Allocating salaries: paying family members a reasonable salary from a family business. Using trusts or partnerships: structuring income distribution to benefit from lower rates or deductions.

Example: A business owner transfers a portion of their investment income to their adult children, who are in lower tax brackets, thereby reducing the family’s total income tax liability.