Tax Tip Thursday

Its funny how clients and topics seem to come in groups.

I have had a number of clients come to me with situations and/or questions about this topic.

TOSI

TOSI stands for Tax on Split Income.

One of the main aspects of the rules applies to paying your spouse dividends from your private corporation, and it can cause you grief if you don’t set up your strategy quite right. So, that is where I will focus today.

• If your spouse already works full time – this makes it difficult to prove that they are making a significant contribution to the business of at least 20 hours per week or more working in the business.
• A company that only has a handful of clients or less – is there really a need for an admin assistant, marketing person, contract administrator, etc.?

Those are 2 big obvious indicators of what you are representing to the CRA.

Setting aside those problems, some things you can do to help build your case for CRA in a situation of legitimate income splitting:

• The spouse should have a legitimate role in the organization and be contributing to the company
• They must work 20 hours per week even on weeks with stat holidays OR they make a significant financial contribution to the business – this one is SIGNIFICANT
• There must be a real job description
• They must have a business email that is used for business purposes
• Having Business cards helps
• Having a Business Phone line helps
• The spouse needs to be paid into a separate bank account – joint bank accounts are definitely not acceptable
• Ideally they are on payroll, with payroll deductions and T4 at year-end.

All of these things will address the credibility of the role in the organization and give you the ability to reasonably split income, both through salary/wages, but also with dividends. The spouse does have to own shares in the corporation in order to be paid dividends.

There’s More To It

There are a lot of other complexities to TOSI rules and each situation is unique and needs to be considered on its own merit. Before you make any moves with respect to paying your spouse, you should consult with an account for professional advice!

If you are trying to split your business’ income between yourself and your spouse, please Make an Appointment today! Save yourself the headache at the end of the year.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.