Income attribution rules between related persons

In Canada, the personal tax return is calculated on the individual's total taxable income of the year. Tax rates increase by income level. So, if you earn more than $220,000 per year, you are in the highest tax bracket and pay the highest rate.

To reduce personal taxes, there are not many options other than RRSP contributions and tax credits you can have depending on your situation. Also, there is a maximum amount you can contribute to your RRSP.

Some people will try to split their income between family members in order to split the income, thinking that it will reduce their tax liability. Unfortunately, this is not the case... There are tax some rules to prevent the abuse of income splitting between the following related persons: spouses and minor children. Children at or over the age of majority are not covered by these rules.

When an individual transfers property to a spouse or minor child, the income from that property (ex: rental properties, investments, etc.) will be taxed in the hands of the transferor. In addition, the transferor will be taxed on the capital gain when the property will be sold to an unrelated party.

To learn more, visit the CRA website. You can also contact us by making an appointment for a consultation with one of our chartered professional accountants (CPA).