What are the rules for income splitting, in simple English?

[hezzibug]

I haven't worked much this year with my own business. I do legitimately do a lot with my husband's business (manage his schedule, website, books, communication, and advertising). This is the first year we've had this arrangement as I previously worked outside of the home. What are the rules and guidelines for how I should file our taxes?

[SandraWWoodbridge]

If you receive a salary from your work at your husband’s business, you can absolutely avoid the TOSI (Tax on Split Income).

As per the Canada Revenue Agency (CRA): The TOSI rules do not apply to salary received by an individual.

If you receive dividends from the business, you need to provide proof that you have worked an average of at least 20 hours per week during the part of the year that the business operates.

As per CRA: Records such as timesheets, schedules or logbooks retained by either an individual or a business will be sufficient to establish the number of hours the individual worked in a given year. Where the individual also receives a salary or wages from the business, the CRA would also consider information contained in payroll records that supports the number of hours the individual worked.

Otherwise, the TOSI rules would apply to you, meaning the split income doesn't work and the higher tax rate will apply.

For more details, please check these FAQs:

TurboTax: Which form should I use for tax on split income?

CRA: Frequently asked questions – Income sprinkling

If you require further assistance please contact our phone support team or contact us directly on Facebook or Twitter.

[hezzibug]

Ok. My husband has a sole proprietorship. So yes I recieved a salary but I'm not on payroll if that makes sense because we're too small to have payroll. So how does that work?

[linhph178]

Income splitting is only available for pension income. Since you have your own business, and your salary is not on payroll, try using the income you earned from your business (if there is any) to transfer income and deductions between you and your husband.

We recommend transferring income and deductions between you and your husband to reduce the federal tax rates. For more information, please check this article: Transferring Income and Deductions Between Partners to Lower Your Tax Burden

If you need further help, please reach out to us through our phone support team or contact us directly on Facebook or Twitter where our experts will be more than happy to answer your questions with details in a quick and effective manner.

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