Proposed budget rules for income splitting

Dividends and the proposed income splitting rules

The commencement date of the proposed income splitting rule is January 1, 2018 and some accountants are recommending large 2017 dividends. However, there are some other inportant points to be considered prior to the dividends payout.

Will the dividends impact the reasonability of future dividend payments? This depends on final income splitting tax change legislation.

What is the taxpayer’s current marginal rate and to what extent will the dividend increase it? How does the current year's tax liability compare to potential future tax given the time value of money?

How the dividends will impact the recipient’s income tested benefits? (e.g. Old Age Security, Canada Child Benefit)

How will this affect bank covenants or other agreements of the corporation?

Is the right corporate structure and class of shares in place to pay the desired dividend?

As the final legislation effecting the proposals has not been released, there is still some uncertainty as to the detailed rules. The above concerns are dependent on the final legislation relating to the July 18, 2017 proposed legislation and present unique tax challenges and opportunities that need to be addressed by an experienced Chartered Accountant.