---
title: Income Splitting Rules Could Affect Tax Planning through Private Corporations
description: To stop taxpayers from benefiting unfairly from income sprinkling, the government introduced a 33% tax on all income split with eligible minor children.  We are happy to provide information about changes to the income splitting rules and how they could affect your tax planning strategy.
image: https://www.koroll.ca/hubfs/Stock%20images/Silhouette%2c%20happy%20children%20with%20mother%20and%20father%2c%20family%20at%20sunset%2c%20summertime.jpeg
---

[![Koroll & Company - Newmarket CPAs](https://www.koroll.ca/hs-fs/hubfs/images/Logos/koroll_blue.png?width=247&height=65&name=koroll_blue.png "Koroll & Company - Newmarket CPAs")](https://www.koroll.ca/)

[![Certified Professional Accountants Newmarket](https://www.koroll.ca/hs-fs/hubfs/images/Logos/CPALogo_2014_notext_72.png?width=82&name=CPALogo_2014_notext_72.png "Certified Professional Accountants Newmarket")](https://www.cpacanada.ca/)

![AdobeStock_77939924_WM.jpeg](https://www.koroll.ca/hs-fs/hubfs/images/Banners/taxesBannerBlueStrip-1.jpg?width=2000&name=taxesBannerBlueStrip-1.jpg "AdobeStock_77939924_WM.jpeg")

# Koroll & Company Blog

- [Tax Deductions (118)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-deductions)
- [Tax Tips (88)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-tips)
- [CRA (85)](https://www.koroll.ca/koroll-and-company-blog/topic/cra)
- [Corporate (84)](https://www.koroll.ca/koroll-and-company-blog/topic/corporate)
- [Small Business (61)](https://www.koroll.ca/koroll-and-company-blog/topic/small-business)
- [Pension Plans (30)](https://www.koroll.ca/koroll-and-company-blog/topic/pension-plans)
- [RRSP (22)](https://www.koroll.ca/koroll-and-company-blog/topic/rrsp)
- [Education (14)](https://www.koroll.ca/koroll-and-company-blog/topic/education)
- [TFSA (14)](https://www.koroll.ca/koroll-and-company-blog/topic/tfsa)
- [Real Estate (13)](https://www.koroll.ca/koroll-and-company-blog/topic/real-estate)
- [COVID-19 Updates (7)](https://www.koroll.ca/koroll-and-company-blog/topic/covid-19-updates)
- [E-Commerce (2)](https://www.koroll.ca/koroll-and-company-blog/topic/e-commerce)
- [Internet (2)](https://www.koroll.ca/koroll-and-company-blog/topic/internet)
- ["Ontario Budget" (1)](https://www.koroll.ca/koroll-and-company-blog/topic/ontario-budget)
- [Insider (1)](https://www.koroll.ca/koroll-and-company-blog/topic/insider)

[see all](https://www.koroll.ca/koroll-and-company-blog/income-splitting-rules-could-affect-tax-planning-through-private-corporations#)

## [Income Splitting Rules Could Affect Tax Planning through Private Corporations](https://www.koroll.ca/koroll-and-company-blog/income-splitting-rules-could-affect-tax-planning-through-private-corporations)

 [fa icon="calendar"] Mar 20, 2018 10:47:00 AM / by [Allen Koroll](https://www.koroll.ca/koroll-and-company-blog/author/allen-koroll)

- [Tweet](https://twitter.com/share)

![Income Splitting Rules Could Affect Tax Planning through Private Corporations](https://www.koroll.ca/hs-fs/hubfs/Stock%20images/Silhouette%2c%20happy%20children%20with%20mother%20and%20father%2c%20family%20at%20sunset%2c%20summertime.jpeg?width=300&height=200&name=Silhouette%2c%20happy%20children%20with%20mother%20and%20father%2c%20family%20at%20sunset%2c%20summertime.jpeg)In the past, parents who owned or operated corporations would have their minor children, directly or indirectly, subscribe to shares or invest in partnerships, which provided management services to the parent’s company.

They would then declare dividends on these shares, which would be tax-free, as these minors had lower income.

Most often, this income would be held in trust for the child.

The trust would then be used to pay for the child’s expenses – school, camp, extra curriculars.

This process became known as income sprinkling.

To stop[ taxpayers](https://www.koroll.ca/tax-services) from benefiting unfairly from income sprinkling, the government introduced a 33% tax on all income split with eligible minor children.

Known as the Kiddie Tax or Tax on Income Splitting (TOSI), this tax was applied to the following:

1. Taxable dividends received from unlisted corporate owned directly or through a trust or partnership
2. Taxable benefits awarded in respect to unlisted shares
3. Partnership or trust income sourced to a relative’s business, either directly or through corporate structure
4. Capital gains on the sale of shares to non-arm’s length individuals, where dividends would be subject to tax
5. Trust income “earned” for services to arm’s length parties where a relative is involved in providing those services
6. Partnership income for services provided to an arm’s length party where a relative has partnership interest

While this change affected a very specific set of tax payers, proposed changes could increase the number of affected companies and individuals going forward.  

This is because, it is now proposed that the income sprinkling rules should be expanded to include spouses and adult children, if the amount received surpasses what is deemed reasonable as per a reasonableness test.

It is also proposed that the tax should be applied to debt interest, gains on disposition of property and second generation income, in addition to incomes listed above.

There are some exceptions in which the TOSI would not apply to adult relatives. These include those who:

1. worked in the business on a regular, continuous and substantial basis in the current year or any 5 previous non-consecutive years
2. are 25 or older and own at least 10% of voting shares and corporation value so long as: 
     1. Less than 90% of income is derived from services
     2. It is not a professional corporation
     3. A substantial amount of income is not from a related business
3. are the spouse of someone 65 or older who has made significant contribution to the company
4. inherit shares for which TOSI rules did not apply
5. dispose of property (i.e. shares) that qualifies for the lifetime capital gains exception, whether or not you actually claim the exception

For more information about changes to the income splitting rules and how they could affect your tax planning strategy, [contact us](https://www.koroll.ca/contact-us) today. We look forward to helping you optimize your after-tax position.

 

[![Book A Free Consultation](https://no-cache.hubspot.com/cta/default/1577306/b06a76bd-288d-4d2f-9a8c-41fd86ee8e2f.png)](http://cta-redirect.hubspot.com/cta/redirect/1577306/b06a76bd-288d-4d2f-9a8c-41fd86ee8e2f)

---

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

## About Koroll & Company

 At Koroll & Company we grow our firm through satisfied clients referring us as a trusted accounting firm to their friends, family members and associates. The only way we know how to achieve this is strive to exceed your expectations and provide you with exceptional service. We have 20+ years servicing Newmarket, ON and the surrounding areas, and look forward to servicing you next. So give us a call and speak to a friendly staff member from Koroll & Company today!

 Topics: [Tax Deductions](https://www.koroll.ca/koroll-and-company-blog/topic/tax-deductions), [Small Business](https://www.koroll.ca/koroll-and-company-blog/topic/small-business)

![Allen Koroll](https://www.koroll.ca/hubfs/Koroll_and_Co_Staff_Pictures/Allen_Koroll_CGA_Newmaket_Picture.png)

#### Written by [Allen Koroll](https://www.koroll.ca/koroll-and-company-blog/author/allen-koroll)

### Subscribe to Email Updates

- Recent
- Popular
- Categories

### Lists by Topic

- [Tax Deductions (118)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-deductions)
- [Tax Tips (88)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-tips)
- [CRA (85)](https://www.koroll.ca/koroll-and-company-blog/topic/cra)
- [Corporate (84)](https://www.koroll.ca/koroll-and-company-blog/topic/corporate)
- [Small Business (61)](https://www.koroll.ca/koroll-and-company-blog/topic/small-business)
- [Pension Plans (30)](https://www.koroll.ca/koroll-and-company-blog/topic/pension-plans)
- [RRSP (22)](https://www.koroll.ca/koroll-and-company-blog/topic/rrsp)
- [Education (14)](https://www.koroll.ca/koroll-and-company-blog/topic/education)
- [TFSA (14)](https://www.koroll.ca/koroll-and-company-blog/topic/tfsa)
- [Real Estate (13)](https://www.koroll.ca/koroll-and-company-blog/topic/real-estate)
- [COVID-19 Updates (7)](https://www.koroll.ca/koroll-and-company-blog/topic/covid-19-updates)
- [E-Commerce (2)](https://www.koroll.ca/koroll-and-company-blog/topic/e-commerce)
- [Internet (2)](https://www.koroll.ca/koroll-and-company-blog/topic/internet)
- ["Ontario Budget" (1)](https://www.koroll.ca/koroll-and-company-blog/topic/ontario-budget)
- [Insider (1)](https://www.koroll.ca/koroll-and-company-blog/topic/insider)

[see all](https://www.koroll.ca/koroll-and-company-blog/income-splitting-rules-could-affect-tax-planning-through-private-corporations#)

### Posts by Topic

- [Tax Deductions (118)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-deductions)
- [Tax Tips (88)](https://www.koroll.ca/koroll-and-company-blog/topic/tax-tips)
- [CRA (85)](https://www.koroll.ca/koroll-and-company-blog/topic/cra)
- [Corporate (84)](https://www.koroll.ca/koroll-and-company-blog/topic/corporate)
- [Small Business (61)](https://www.koroll.ca/koroll-and-company-blog/topic/small-business)
- [Pension Plans (30)](https://www.koroll.ca/koroll-and-company-blog/topic/pension-plans)
- [RRSP (22)](https://www.koroll.ca/koroll-and-company-blog/topic/rrsp)
- [Education (14)](https://www.koroll.ca/koroll-and-company-blog/topic/education)
- [TFSA (14)](https://www.koroll.ca/koroll-and-company-blog/topic/tfsa)
- [Real Estate (13)](https://www.koroll.ca/koroll-and-company-blog/topic/real-estate)
- [COVID-19 Updates (7)](https://www.koroll.ca/koroll-and-company-blog/topic/covid-19-updates)
- [E-Commerce (2)](https://www.koroll.ca/koroll-and-company-blog/topic/e-commerce)
- [Internet (2)](https://www.koroll.ca/koroll-and-company-blog/topic/internet)
- ["Ontario Budget" (1)](https://www.koroll.ca/koroll-and-company-blog/topic/ontario-budget)
- [Insider (1)](https://www.koroll.ca/koroll-and-company-blog/topic/insider)

[see all](https://www.koroll.ca/koroll-and-company-blog/income-splitting-rules-could-affect-tax-planning-through-private-corporations#)

### Recent Posts

### Navigation

[![Book a Corporate Consultation ](https://no-cache.hubspot.com/cta/default/1577306/d01d118a-226f-4228-b26d-7c2ce0d13ccf.png)](https://cta-redirect.hubspot.com/cta/redirect/1577306/d01d118a-226f-4228-b26d-7c2ce0d13ccf)

![](https://www.koroll.ca/hs-fs/hubfs/images/Logos/koroll_white.png?width=247&height=65&name=koroll_white.png "koroll_white.png")

 

We've proudly served Newmarket and the surrounding region for over 20+ years. We pride ourselves on delivering value to all our clients, and providing up-to-date expertise and knowledge. 

 

[![facebook icon](https://www.koroll.ca/hubfs/2023/square-facebook.svg)](http://www.facebook.com/korollandcompany) [![linkedin icon](https://www.koroll.ca/hubfs/2023/linkedin.svg)](https://www.linkedin.com/company/allen-h.-koroll-c.a.-professional-corporation) [![twitter icon](https://www.koroll.ca/hubfs/2023/twitter-x-white.svg)](https://twitter.com/KorollandCo)

### Contact

[38 Prospect Street  
Newmarket Ontario L3Y 3S9](https://www.google.com/maps/place/Koroll+%26+Company+Chartered+Professional+Accountants+Professional+Corporation/@44.0593338,-79.4562737,17z/data=!3m1!4b1!4m2!3m1!1s0x882ad2096531cf1d:0x7bf5f55f9fcb9b00?hl=en-US)

[905-898-4231](tel:+19058984231)

[![Contact Us](https://no-cache.hubspot.com/cta/default/1577306/f8ffd2cd-cfd6-4927-b6ec-0b5e267faf4c.png)](https://cta-redirect.hubspot.com/cta/redirect/1577306/f8ffd2cd-cfd6-4927-b6ec-0b5e267faf4c)

Copyright 2026 | [Privacy Policy](https://www.koroll.ca/privacy-policy) | [Terms & Conditions](https://www.koroll.ca/terms-conditions) | Created by [The Brit Agency](https://www.thebritagency.com/)

[[fa icon="chevron-up"]](https://www.koroll.ca/koroll-and-company-blog/income-splitting-rules-could-affect-tax-planning-through-private-corporations#)