You likely already share a home with your spouse, but should you share your business and make them a shareholder too?
This is a complex decision that depends on several factors: the nature of your relationship, each person’s involvement in the business, your shareholder structure, and tax. One tax rule in particular, the Tax on Split Income (TOSI), matters a great deal here, and we will cover it below.
What is a shareholder?
Before we get into the pros and cons, let’s define the term. A shareholder (also called a stockholder or equity holder) is an individual, company, or organization that owns shares in a corporation. Shareholders are the legal owners of a portion of the company and have certain rights. By owning shares, they hold a financial interest in the corporation and can participate in its profits and growth.
(Are you using your corporation to invest and save tax? See five strategies to invest and save tax.)
The decision to make your spouse a shareholder
If your goals and interests align with your spouse’s, having them as a co-owner can work well. You can share responsibilities and decisions, and their skills may add value to the business.
It is also worth weighing the downsides. Mixing personal and professional dynamics can add strain. Co-ownership might limit your flexibility to pursue other ventures, and it can create dependencies that affect decision-making.
Plan for the difficult scenarios too. If you separate, untangling business ownership can get complicated and lead to disputes over how assets are divided. It is worth discussing a plan in case either of you leaves the business or something unexpected happens.
Ultimately, the decision depends on your circumstances, preferences, and mutual agreement. Open, honest conversations about expectations and roles are essential, and professional advice helps.
(For how these fit together, see operating company vs. holding company vs. family trust.)
An important tax rule: Tax on Split Income (TOSI)
Many owners assume that issuing dividend-paying shares to a spouse is a simple way to split income and lower the family’s overall tax. Since 2018, that is often not the case.
Under the Tax on Split Income (TOSI) rules, dividends paid from a private corporation to a spouse are generally taxed at the top marginal rate, unless a specific exclusion applies. Common exclusions include:
- Age 65 exclusion: where the business owner attained age 64 before the year, meaning the year they turn 65 and every year after, dividends paid to a spouse fall outside TOSI provided the amount would itself have been an excluded amount had the business owner received it directly. Both conditions have to hold. In practice the second one is usually met where the owner has been actively engaged in the business, but it is a condition rather than an assumption. The recipient spouse’s own age does not matter here.
- Excluded shares: this one has more conditions than it is usually given credit for, and they all have to be met. The spouse must own the shares directly, be 25 or older, and hold at least 10% of the votes and 10% of the value. Less than 90% of the corporation’s business income must come from the provision of services. Substantially all of its income must not come from another related business. And critically, the exclusion is not available at all where the corporation is a professional corporation. For incorporated doctors, dentists, lawyers and accountants, that closes this route entirely, so do not assume it applies.
- Excluded business, the labour route. This is the exclusion a working spouse actually uses, and it is separate from the two above. It applies where the spouse is actively engaged on a regular, continuous and substantial basis in the business. An average of 20 hours a week during the part of the year the business operates is the accepted benchmark. It can be met in the current year or in any five previous years, which need not be consecutive, which is what protects a spouse who worked in the business and has since stepped back. The age threshold here is 18, not 25.
- Reasonable return, a different test again. For a spouse aged 25 or older who does not meet the tests above, an amount may still fall outside TOSI if it is a reasonable return given the work they performed, the property they contributed, the risks they assumed, amounts previously paid to them, and other relevant factors. This is fact-specific and assessed case by case.
Do not read these as one general “meaningful contribution” test. They are separate pathways with different conditions and different age thresholds, and contributing some labour, capital or risk does not by itself make a dividend exempt.
Because these tests are fact-specific and the CRA reviews them closely, this is an area where you want tax advice before setting up dividend-paying shares for a spouse. The point is simple: making your spouse a shareholder does not automatically allow tax-efficient income splitting, and getting it wrong can mean those dividends are taxed at the highest rate.
How to structure your spouse’s shares
If you do include your spouse as a shareholder, here are common share classes you might issue (each should be reviewed against the TOSI rules above):
1. Non-voting shares with dividend rights. If you want your spouse to receive dividends but not control company decisions, non-voting dividend-bearing shares let them receive a share of the profits without being involved in operations. Note that whether those dividends are tax-efficient depends on the TOSI rules above.
2. Voting or non-voting shares without dividend rights. If you want your spouse to be an owner but not receive dividends, you can issue a class of shares with no dividend rights. This can suit a spouse who is employed elsewhere and would face extra tax on dividends.
3. Non-voting shares without dividend rights. If you want your spouse to be a shareholder but not receive dividends or vote, non-voting, non-dividend shares are an option. Be careful with the succession argument that usually accompanies this one: issuing shares does not by itself cause the company to pass smoothly on death. What actually determines that is your will and estate plan, the shareholder agreement and its buy-sell provisions, the tax arising on death, whether an estate freeze has been done, corporate-owned insurance to fund the liability, probate, and how the shares are valued. Shares are one input, not the mechanism.
One correction worth making about all three. A share’s rights are established in the corporation’s articles and in the terms attached to each class, not in a shareholder agreement. A shareholder agreement governs how shareholders deal with each other, transfers, exits, death and disputes. It does not, on its own, create the rights attached to a class. Also note that a share with no votes and no dividend entitlement may still carry redemption, liquidation or growth rights that materially affect its value.
Treat the three options above as a starting vocabulary for a conversation, not a menu to copy. Issuing or transferring shares to a spouse can raise valuation, shareholder-benefit, attribution, corporate-reorganization, control, family-law, QSBC and estate consequences, and a structure that suits one family can be wrong for another. The actual share terms should be drafted by a corporate lawyer after tax advice.
For any of these classes, you will want a shareholder agreement that sets out the ownership structure, drafted with a legal professional to ensure it follows the rules in your jurisdiction.
Book a call to talk through whether making your spouse a shareholder fits your corporate structure and your goals.
Frequently asked questions
Can you pay your spouse dividends to split income and save tax?
Usually not in the way owners expect. Since 2018, under the Tax on Split Income rules, dividends paid from a private corporation to a spouse are generally taxed at the top marginal rate unless a specific exclusion applies. Issuing dividend-paying shares to a spouse does not by itself create tax-efficient income splitting, and getting it wrong means those dividends are taxed at the highest rate.
What is TOSI?
TOSI stands for Tax on Split Income. It applies the top marginal tax rate to certain amounts, including private-company dividends, received by family members of a business owner, unless the amount falls within one of the specific exclusions. It was substantially expanded in 2018 to limit income sprinkling among family members.
Does my spouse’s dividend become exempt from TOSI once I turn 65?
Not automatically. The exclusion has two conditions and both must be met: the business owner must have attained age 64 before the year, meaning the year they turn 65 and every year after, and the amount must be one that would itself have been an excluded amount had the business owner received it directly. The second condition is usually met where the owner has been actively engaged in the business, but it is a condition rather than an assumption. The recipient spouse’s own age is not relevant to this particular exclusion.
Can shares of a professional corporation qualify for the TOSI excluded-shares exemption?
No. The excluded-shares exemption is not available for shares of a professional corporation, which closes this particular TOSI route for shares of an incorporated medical, dental, legal, accounting or other professional practice. Other exclusions may still apply depending on the facts, particularly the excluded-business test where the spouse genuinely works in the business, so this does not mean TOSI necessarily applies to every payment.
How many hours does my spouse need to work in the business to be exempt from TOSI?
The excluded business exclusion applies where the spouse is actively engaged on a regular, continuous and substantial basis, and an average of 20 hours a week during the part of the year the business operates is the accepted benchmark. It can be met in the current year or in any five previous years, and those years need not be consecutive, which protects a spouse who worked in the business and has since stepped back. The age threshold for this exclusion is 18, not 25.
Should my spouse hold voting or non-voting shares?
That depends on whether you want them involved in company decisions, and it should be decided with a corporate lawyer rather than chosen from a list. A share’s rights are established in the corporation’s articles and in the terms attached to each class, not in a shareholder agreement. A share carrying no votes and no dividend entitlement may still carry redemption, liquidation or growth rights that materially affect its value. Issuing or transferring shares to a spouse can also raise valuation, shareholder-benefit, attribution, corporate-reorganization, control, family-law, QSBC and estate consequences.
Sources
- CRA, Guidance on the split income rules for adults (TOSI)
- CRA, Tax on split income (TOSI)
- CRA, Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length
- BDO Canada, Private corporations and income splitting
This article is general educational information only. It is not personalized financial, investment, tax, legal, or insurance advice. Tax rules and rates are current as of July 2026 and can change. Your situation is unique, so please speak with your accountant and your advisor before acting.
Not sure how this applies to your own situation? <a href=”https://ocean6.ca/book-a-call”>Book a call</a> and we can walk through it together.
