Corporate Attribution

Income splitting is an effective tax planning tool to take advantage of the different marginal personal income tax rates at different income levels. By splitting income amongst individual family members, tax savings results by taking advantage of multiple lower personal tax bracket rates. Click HERE for tax rates at various personal income levels.

There are tax rules to prevent excess income splitting. General attribution rules are discussed HERE and some tax planning to avoid attribution is discussed HERE. In those discussions, it was assumed that income splitting involved individuals directly. However, there are also tax rules to prevent the same sort of income splitting indirectly, through the use of corporations and are found in Section 74.4 of the Income Tax Act. A general discussion of Section 74.4 Corporate Attribution can be found HERE.

There are some tax planning opportunities to avoid or mitigate Corporate Attribution problems as follows:

1. Make sure the corporation is a Small Business Corporation. Ensure the property transferred is either business related assets or if it is property, then the Small Business Corporation status is maintained after the transfer.

2. Make sure the Designated Person who is a Specified Shareholder of the corporation (see discussion HERE for definition of Specified Shareholders) own less than 10% of the issued shares of any class of the corporation at any time during the year. 

3. If corporate attribution cannot be avoided, ensure enough dividends are paid to the transferor to eliminate the interest benefit calculation found HERE. 

There are more tax planning opportunities to mitigate or avoid these attribution calculations. Careful tax planning with a Chartered Accountant is necessary in all circumstances. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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