Tax Facts 2025
Tax Facts 2025 provides you with a summary of 2025 personal income tax rates and amounts, as well as corporate tax rates based on announcements made to July 1, 2025.
Important considerations for income splitting in Canada
Effective income splitting requires the couple to work together with a long-term focus to realize the tax savings—while the benefits may not be immediate, they are intended to build over time.
In general, this type of investment planning would only come after both spouses have taken advantage of ways to earn investment income tax free—such as using a Tax-Free Savings Account (TFSA) or a First Home Savings Account (FHSA)—and where Registered Retirement Savings Plans (RRSP) have been used to their best advantage. For more information about these savings plans, see our article, Q&A: Answering your tax questions on RRSPs, TFSAs, and the new First-Home Savings Account (FHSA).
Taxpayers who are majority shareholders in private corporations generally have the greatest ability to take advantage of income splitting planning. This is addressed in our article, Private corporation and income splitting.
There are rules that prevent income from gifts of property or loans made at less than arm’s length terms to be split with a spouse, as the rules will attribute this income back to the spouse who made the gift or loan. The planning in this article avoids these income attribution situations.
Five income splitting strategies
Here are five practical strategies that couples can use to effectively split income and reduce their overall tax burden.
Where both spouses work and have employment or self-employment income, household expenses are often shared. While this may seem a fair and equitable approach, it will likely result in the higher-income spouse having more savings, which will generate investment income that is taxed at a higher tax rate.
To the extent possible, the lower-income spouse’s salary or self-employment earnings should be saved for investment purposes, while the higher-income spouse pays for household expenses such as food, clothing, and mortgage payments. This ensures that the family’s total investment income is taxed at the lowest possible rate.
To the extent possible, the lower-income spouse’s salary or self-employment earnings should be saved for investment purposes, while the higher-income spouse pays for household expenses such as food, clothing, and mortgage payments. This ensures that the family’s total investment income is taxed at the lowest possible rate.
The income tax rules allow for a direct contribution to a spouse’s RRSP, but not to a spouse’s TFSA. However, if you are the higher-income spouse, you can gift funds to your spouse to allow them to contribute to their own TFSA. As a TFSA earns investment income tax free, the normal attribution rules that would apply to investment income earned from a gift from a spouse do not apply.
The main planning behind spousal RRSPs is to allow for income splitting in retirement. A contribution to your spouse’s RRSP will qualify as a tax deduction for you as long as your total contributions to your RRSP and your spouse’s RRSP do not exceed your contribution limit for the year. Then, when withdrawals are made in retirement, the withdrawal is taxed in your spouse’s hands, which is anticipated to be taxed at a lower rate than what you will pay in retirement.
However, if a withdrawal is made from the spousal RRSP within three years of contribution, then the income will be taxed in your hands, and not your spouse’s.
The main planning behind spousal RRSPs is to allow for income splitting in retirement. A contribution to your spouse’s RRSP will qualify as a tax deduction for you as long as your total contributions to your RRSP and your spouse’s RRSP do not exceed your contribution limit for the year. Then, when withdrawals are made in retirement, the withdrawal is taxed in your spouse’s hands, which is anticipated to be taxed at a lower rate than what you will pay in retirement.
However, if a withdrawal is made from the spousal RRSP within three years of contribution, then the income will be taxed in your hands, and not your spouse’s.
When you get to retirement age and can start to collect your CPP, the amount that you are eligible to receive is dependent on what was contributed over the years. Spouses with different employment and self-employment income over the years may not be entitled to the same amount in retirement.
However, the government will allow you and your spouse to apply to split the combined CPP benefit, which can help to even out income in retirement. The government calls this plan pension sharing, and you can apply to do these even after you have started receiving your CPP benefit. The goal is for you and your spouse to be in the same tax bracket to maximize the tax benefit of income splitting.
However, the government will allow you and your spouse to apply to split the combined CPP benefit, which can help to even out income in retirement. The government calls this plan pension sharing, and you can apply to do these even after you have started receiving your CPP benefit. The goal is for you and your spouse to be in the same tax bracket to maximize the tax benefit of income splitting.
If you have an unincorporated business in which your spouse is active, you may be able to establish that they are your partner, and therefore eligible to share in the profits or losses of the business.
Attention must be paid to the legal details, and it is recommended that you both document the arrangement in a partnership agreement. Generally, to be considered a bona fide partner, your spouse must either devote a significant amount of their time, specified skills, or training to the business or must have invested their own property in the business. You must ensure that your spouse’s share of income is reasonable compared with the amount of work or capital put into the business.
Attention must be paid to the legal details, and it is recommended that you both document the arrangement in a partnership agreement. Generally, to be considered a bona fide partner, your spouse must either devote a significant amount of their time, specified skills, or training to the business or must have invested their own property in the business. You must ensure that your spouse’s share of income is reasonable compared with the amount of work or capital put into the business.
If your spouse has a promising unincorporated business, you could loan funds to that business without charging interest. This means that you would forgo earning investment income on the funds loaned to help finance your spouse’s proprietorship with the anticipation that your loan will help your spouse generate business income. The attribution rules do not apply to business income, and they would also not apply to income earned on your spouse’s re-invested business profits.
However, if the venture is risky, an interest-free loan would not qualify for capital loss treatment should the venture fail, which means that you could lose your investment and not get a tax deduction from the loss. Where this is a risk, becoming a partner by contributing capital and establishing a partnership agreement would allow you to share in the start-up losses and eventual profit. It would also allow you to claim a tax loss if the business fails.
However, if the venture is risky, an interest-free loan would not qualify for capital loss treatment should the venture fail, which means that you could lose your investment and not get a tax deduction from the loss. Where this is a risk, becoming a partner by contributing capital and establishing a partnership agreement would allow you to share in the start-up losses and eventual profit. It would also allow you to claim a tax loss if the business fails.
How BDO can help
While each of these ideas is relatively simple, you may have questions about the best way to implement this planning in your circumstances.
Your BDO advisor is ready to help.
The information in this publication is current as of June 4, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.