knowledge topics
Income Splitting for Self-Employed Business Owners
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- Explain methods for how self-employed business owners may split income, such as:
- Paying reasonable wages to spouse, common-law partner, adult or minor child for services performed in the operation of a business owned by the taxpayer
- Paying reasonable director’s fee to spouse, common-law partner, or adult child for services performed in the operation of a corporation owned by the taxpayer
- Paying reasonable guarantee fee to spouse, common-law partner or adult child for services performed in the operation of a business owned by the taxpayer
- Creating a business with shared ownership between a taxpayer and spouse
- Adding adult family members as shareholders to a corporation to receive dividends
- Adding adult family members as shareholders to a corporation owned by the taxpayer to maximize the capital gains deduction
- Establishing a family trust
- Explain the estimated income tax impact for each income splitting method.
- Estimate the income tax impact for each income splitting method.
- Explain how each of the factors may impact the suitability of self-employed business owners splitting income, such as:
- Marginal tax rate differential between the taxpayer and self-employed business owner
- In current year
- In future years when withdrawals are made, if applicable
- Impact on net taxes paid by the taxpayer and self-employed business owner
- Income attribution rules
- Potential impact on government benefits
- Potential impact on government sponsored savings plans, including grants and bonds
- Potential impact on ownership of assets
- Potential impact on creditor protection of assets
- Potential for CRA to deem method unreasonable and used only for tax avoidance under General Anti-Avoidance Rules (GAAR)
- Cost and fees associated with implementing the strategy to split income
- Marginal tax rate differential between the taxpayer and self-employed business owner
- Evaluate how each of the factors may impact the suitability of self-employed business owners splitting income.
- Identify that Tax on Split Income (TOSI) rules impact methods of income splitting
- Explain how the Tax on Split Income (TOSI) rules impact methods of income splitting
- Explain terms used in the application of TOSI rules, including:
- Related business
- Specified individual
- Excluded amount
- Excluded shares
- Excluded business
- Reasonable return
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK