Income Splitting: Transferring Assets to a Private Corporation or Family Members

There is a general “income splitting” strategy in tax planning – namely the transfer of income or capital gains that would otherwise be taxed at a high marginal rate in one family member’s hands to others in the family who are taxed at lower marginal rate. This is done by transferring income or capital gain producing property from the high-bracket taxpayer to the lower-bracket taxpayer.

However, there are income tax attribution rules to reverse this “income splitting” tax planning, which applies to transfers/loans of property to: Spouses or to an individual under 18 years of age with whom the taxpayer does not deal at arm’s length, to nephews and nieces, and to trusts and certain corporations (other than small business corporations).  The CRA has indicated in IT-511R that the income attribution rules do not apply to “second generation income”, i.e., income earned on previously attributed income.

Some of the exceptions to these attribution rules:

  • Transfer is made for fair market value consideration
  • In the case of loans, interest is charged at prescribed rate in effect at the time the debt was incurred, and the interest is paid with 30 days after year-end – see our article on “prescribed rate loan strategy
  • Where spouses are separated due to a breakdown of their marriage or common-law partnership

Income Splitting strategies requires a comprehensive review of your particular situation along with all the attribution rules in order to customize a right plan for you.  Please contact our specialists to find out more.


This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email us for further advice.