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As you probably know, individual income tax in Canada
runs at progressive rates, meaning that the tax on the
last dollar earned rises as income rises. The top personal
rate in 1986 was about 55% in Ontario (it varies from one
province to another); for 1987, it's about 52.5%.

Because of the progressive rates, a single income of, say,
$50,000 is taxed much more heavily than two $25,000 incomes.
(There is no joint filing for spouses in Canada, as there
is in the U.S.)  This provides an incentive for "income
splitting", that is, splitting a taxpayer's income within
a family group to reduce tax.

The Income Tax Act has a system of attribution set up to
prevent certain kinds of income splitting. For example, if
the husband is the sole earner in the family, and he gives
or lends his wife $50,000 which she invests at (say) 10%,
the $5,000 interest income is attributed back to him and
taxed as part of his income (normally at a higher rate)
rather than hers.

Certain options for income splitting are available, however.
If you are self-employed (e.g., as a consultant), it may be
possible to pay your spouse or other family members for services
performed. For investment income splitting in a two-income
family with disparate incomes, the spouse with the higher income
should pay all personal expenses while the spouse with the lower
income should invest.  There are other possiblities too, which
depend on your circumstances -- consult your tax advisor.

David Sherman, Consultant
The Law Society of Upper Canada
Toronto
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