Sterling's Blog

Revisions to Income Splitting

On December 13, the Department of Finance released revisions to their Tax on Split Income (“TOSI”) proposals. In a future post, we will address the technical content of these proposals. For now, we wanted to address two glaring concerns.

You should contact us as soon as possible if:

  • You pay dividends to your spouse or family through your corporation or plan to do so in the future; or
  • Your corporation has significant retained earnings – the personal tax rate when taking this money out as dividends will increase as a result of the decrease in the small business tax rate.
The first two glaring concerns with the announcement are:

1)The timing of the proposals

The legislation was released on December 13, the last day the House sits. This prevented the Government from facing any accountability for their proposals.

Most importantly, however, the effective date of the legislation remained January 1, 2018 despite the very late changes to the laws. This means that corporate taxpayers have less than 20 days during the holidays to coordinate any necessary changes with their lawyers and accountants. This is a very punishing timeframe even for a simple change, but as you will see in the next post, these changes are anything but simple, with many different nuances to consider.

This timeframe means we need to hear from you as soon as possible in order to make any necessary changes prior to the year-end.

2)The government’s rhetoric

In announcing these proposals, Finance continued to rely on problematic rhetoric to try to justify their proposals, including describing the situations they are affecting as “unfair tax planning strategies”.

There is some new problematic rhetoric also. The government has addressed criticisms of their previous proposals on a gender basis with the following extremely insulting justification of how these changes will actually better be for women because it will cause them to enter the workforce:

Data show that men represent over 70% of higher-income earners initiating income sprinkling strategies, and women represent about 68% of recipients of sprinkled dividends (and 58% of recipients of income derived from trust and partnerships). While this income is of benefit for recipients, it also creates incentives that reduce female participation in the workforce. Increased participation of women in the workforce is a source of economic opportunity for individuals and is a major driver of overall economic growth.