Income splitting example

Dr. Sharp practices in Quebec and is taxed at the highest marginal rate of 53%. His spouse has little to no income, she is taxed at a much lower tax rate.

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When incorporating Dr. Sharp's practice, we issued non-voting shares to his wife that also allow her to receive discretionary dividends decided and distributed by Dr. Sharp. 

• With income splitting, Dr. Sharp declares a $40,000 dividend in favour of his wife. The tax payable is as little as $3,000.

• Without income splitting, if that same $40,000 dividend were to be taken by Dr. Sharp himself, it would be taxed at the highest rate. The tax payable would be approximately $16,000.

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This tax strategy could potentially save Dr. Sharp $13,000 every year.

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