Reduce Your Family’s Tax Bill In Canada Using These 3 Income-Splitting Strategies

While Canadians file and pay taxes as individuals, opportunities exist to reduce your overall household tax bill. You can help reduce your family’s taxes in Canada using these 3 income-splitting strategies.

In Canada, the tax system is progressive or graduated. The greater your taxable income, the higher your top marginal tax bracket, and the larger your tax bill in proportion to your income.

In cases where your spouse (or other family members) have a significantly lower taxable income and therefore are subject to a lower marginal tax rate, there are income-splitting opportunities to reduce your family’s tax bill.

Simply put—you can reduce your overall household taxes by allocating income from the individual subject to a higher marginal tax bracket to your spouse (or other family members) subject to a lower bracket. Now, let’s dive into three of these tax saving strategies!

Strategy #1: Split Income From Registered Accounts

It’s widely known that pension income can be split between spouses for tax purposes. A lesser known opportunity of the same kind exists with registered accounts, specifically with Registered Retirement Income Funds (RRIFs) as well as their locked-in counterparts, Locked-In Retirement Income Funds (LRIFs).

While RRSP withdrawals are taxable in the hands of the plan owner, withdrawals from a RRIF or LRIF can be split between spouses for tax purposes after the age of 65. This opportunity also extends to annuity-type payments from a Registered Pension Plan (RPPs), as well as Life Income Funds (LIFs).

Strategy #2: Higher Income Spouse Pays Expenses, Lower Income Spouse Invests

In cases where there is a significant disparity in taxable incomes between spouses during their working years, and there is scope for contributing to non-registered investment accounts, this second household tax reduction strategy may be of interest to you.

This strategy does not require any formal tax work and is done by having the higher income spouse pay all or most of the household’s expenses, while allocating the lower income spouse’s income to investing in non-registered accounts.

Any income derived from investments held in this non-registered account, such as from dividends and interest, would be taxable in the hands of the lower income spouse, subject to lower marginal tax rates, minimizing their overall family tax bill.

It is important to note that while no formal tax reporting is required, it is beneficial to keep detailed records of this cash flow should you be required to explain the source of the funds to the Canadian Revenue Agency (CRA).

Strategy #3: Providing A Loan To A Family Trust

Cascading wealth to children can help pay for expenses such as private school or extracurricular activities, and if structured correctly, can also provide an opportunity to navigate income attribution rules to split income.

Between spouses, a loan made by the higher income spouse to the lower income spouse with proceeds used to purchase investments can allow for resulting income (net of required interest payments) to be taxed in the hands of the lower income spouse so long as the loan carries interest at the prescribed rate and is paid within 30 days of the end of the year.

With children, it may not be pragmatic to lend funds directly, especially at a time when they are still minors. The solution may be to lend the funds to a family trust at the prescribed rate (just as with a spouse) with your children set up as beneficiaries, where income (net of required interest payments) resulting from the investments purchased with the funds inside the trust by the trustee will flow through to the children (or be used for their benefit) and be taxed in their hands.

In most cases, children have little to no taxable income, and therefore this strategy allows investment income to be shifted away from your and/or your spouse’s higher marginal tax rate to your children’s lower marginal tax rate—while still allowing you to benefit from investment growth and keep it in the family.


Bloom Investment Counsel, Inc. is a well-established Toronto-based independent, privately-owned boutique investment management firm providing customized, actively managed, Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions and trusts.

Founded in 1985, Bloom has experience in managing in excess of $2.5B in assets over the years. We believe that generating independent cash flow is central to the success of our clients’ portfolios because it provides capital for the present day, if needed, while continuing to preserve and build wealth for the future.

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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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