Reverse Income Splitting With Dividends

by Tax Guy - Burlington Accountant on May 27, 2009 Print This Post Print This Post

I have been reading Tim Cestnick’s 101 Tax Secrets For Canadians which for an accountant is more of a breeze through reference than a sit-down an read book. In my breeze through, Tim’s Tip #54 peeked my interest:

“Think about reporting your spouse’s dividends on your own tax return when possible.”

This strategy involves reporting the lower income spouse Canadian dividend income on the higher income spouse’s tax return! By doing so, you could save taxes.

The Dividend Tax Credit

When your spouse receives dividends from Canadian companies, he or she will be entitled to receive the dividend tax credit, which effectively lowers the tax paid on the dividends received. If you spouse’s income is below $10,320 (in 2009), no income tax would be payable and the dividend tax credit would be otherwise lost.

A Special Election

The Canadian Income Tax Act allows you to make an election to include all of your spouse’s dividend income on your tax return. Your spouse’s income is reduce and this will increase the spousal credit you may be entitled to.

Tim notes that you can only make this election if doing so increases the spousal credit.

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More Tax Secrets

For many Canadians reading about income taxes is akin to going to the dentist. However, if you are looking for some great tips that can help you increase your net worth and save some taxes along the way, Tim Cestnick’s 101 Tax Secrets For Canadians, is an excellent addition to your library.

You can pick up a copy at chapters.indigo.ca

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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