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1. Artificial Income Splitting: If the income-splitting arrangement appears artificial or contrived, the CRA may scrutinize it. This includes scenarios where income is shifted without a genuine transfer of economic benefit or work performed.
2. Unreasonable Salaries: Paying family members, especially children or spouses, an unreasonable salary for work that doesn't correspond to the pay can attract CRA's attention. The salary must be reasonable for the work done.
3. Loans and Transfers: Loans or transfers of property to a spouse or minor child to split income may be flagged, especially if they seem to lack a legitimate business purpose.
4. Tax Shelters and Schemes: Using complex tax shelters or schemes to split income can be a red flag. The CRA actively investigates such arrangements to ensure they comply with tax laws.
5. Dividend Splitting: Paying dividends to family members through private corporations, particularly if they are not actively involved in the business, can raise suspicions. The CRA's "tax on split income" (TOSI) rules are designed to address such practices.
6. Business Income Splitting: If business income is split among family members without clear evidence of their involvement in the business, the CRA might scrutinize these arrangements.
7. Trusts and Partnerships: Using trusts or partnerships to allocate income among family members may attract CRA scrutiny, especially if the allocations seem disproportionate to their contributions.
To avoid issues, it's important to:
Understanding and adhering to CRA guidelines can help minimize the risk of audits and penalties.
