Can I split dividend income with my spouse or adult children from my Ontario corporation?

The tax on split income rules, known as TOSI, significantly restrict the ability to split dividend income with family members through a private corporation. TOSI applies a flat tax on split income received by related persons at the highest marginal rate, eliminating the benefit of income splitting unless an exclusion applies.

Exclusions exist but are specific. A spouse who is actively engaged in the business — working at least an average of 20 hours per week during the year or during any five prior years — can receive dividends taxed at their own marginal rate rather than the highest rate. Adult children (18 or older) have similar exclusions if they are actively engaged. A spouse aged 65 or over can receive dividends from the corporation without TOSI applying.

Before TOSI was introduced in 2018, income splitting through a family trust or family share ownership was common. Now a careful analysis is required before paying dividends to any family member who does not meet an exclusion. The CRA enforces TOSI actively. If you want to involve family members in the corporation's ownership, get proper tax and legal advice on structuring share classes and compensation in a compliant way.