Whose Income Is It?

AuthorVern Krishna
ProfessionProfessor of Common Law, University of Ottawa Barrister at Law
Thus far, we have looked at who is taxable and, in a preliminar y way, at
what is the nature of income. However, the individual in receipt of in-
come is not always the person tax able on it. In some cases, income may
be attributed to an individual who becomes taxable on it even though
she does not legally own the income.
Canada taxes each individual as a separate taxpayer. Unlike the
United States, Canada doe s not recognize joint tax return s. To prevent
income splitting between fami ly members, the Income Tax Act ha s strict
attribution and assign ment rules for intra-family property t ransfers be-
tween spouses. The concept of spouse for tax purpos es is broad and
includes common-law partners and sa me-sex married relat ionships.1
The attribution rules are ess entially anti-avoidance rules, but with
numerous exceptions and carve-outs. Since the individual income tax
structure i s progressive,2 income increments a re taxable at higher mar-
ginal rates. This means that a single income family will pay higher
taxes tha n a two-income family with identical income. Thus, high-
income taxpayers have an incentive to reduce their taxes by shifting
income to members of their family in lower tax brackets and splitting
1 See Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], subs 248(1) “common-law
pa rt ne r.”
2 See ibid, s 117.

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