Over the last year we have been working with many doctors to minimize the drastic increase in personal taxes as a result of the Tax On Split Income (TOSI) rules. Here are three strategies that allow you to still income split with family members in lower tax brackets.
- The 20 hour per week exemption.
This is a big one. If your spouse worked at least 20 hours per week this year or for 5 previous years, then TOSI rules do not apply. To qualify for the exemption, your spouse needs to prove he or she worked at least 20 hours per week. These years do not need to be consecutive. Exempt spouses are entitled to receive any discretionary number of dividends.
CRA has clarified it will generally accept time-sheets, payroll records, schedules or logbooks as sufficient proof to establish spousal employment.
It is very important then, to keep your payroll records for at least five years.
The CRA says it will consider the following factors when deciding whether a spouse qualifies for this exemption:
- The type of duties performed as they relate to the clinic’s activities;
- The spouse’s education, training and experience;
- Any particular knowledge, skills or know-how possessed by the individual.
- Reasonable remuneration
It is interesting that TOSI rules do not apply to salaries paid to family members for actual work performed, provided the salaries are reasonable. A good test of reasonableness is to pay the family member what you would have paid to a third party.
- The age exemption.
The government did not want to upset retirement planning for doctors who are in the sunset of their medical careers. If you are 65 years or over in 2018, you can income split with your spouse without any restrictions. The spouse’s age does not matter.
