Question:
I have a corporation and I would like to split my income between myself and my children. Is providing them a dividend the best way to do this?
Answer:
The major drawback to splitting your income with your children (under 18) through dividends (either directly or through a trust) is that the income they will earn will be subject to a kiddie tax. The kiddie tax will apply the highest tax bracket tax rate to all income earned by the kids and all federal credits will be denied. This ends up resulting in an unfavourable tax position compared to if the parent had drawn the dividend himself/herself.
The CRA imposed this tax specifically to prevent income splitting with children. However, there are ways to get around the kiddie tax in specific situations.
