Personal Finance

Income splitting and starting a home based business

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  • Feb 21st, 2012 9:01 am
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Newbie
Feb 18, 2012
8 posts
CALGARY

Income splitting and starting a home based business

Will I screw up my husbands taxes if I start a home based business.We are now able to income split so will it cause hubby to pay more if I start a business?
9 replies
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Jan 27, 2007
5116 posts
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T.
What is the business?

If he is not involved or drawing a salary, then it should not impact his taxes.

He will no longer be able to claim your non-refundable tax credits, but if the business is successful, your income should more than make up for that.
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Newbie
Feb 18, 2012
10 posts
MARKHAM
cakesforkids wrote: Will I screw up my husbands taxes if I start a home based business.We are now able to income split so will it cause hubby to pay more if I start a business?

I can't see it screwing up his taxes as long as he isn't an owner in the business; even then it really depends on what the business does.
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Deal Addict
Feb 24, 2007
1371 posts
55 upvotes
cakesforkids wrote: Will I screw up my husbands taxes if I start a home based business.We are now able to income split so will it cause hubby to pay more if I start a business?

Just to clarify, you can't just split income willy nilly just because you have a business, any income to the husband has to be justified by the work he does for the business, otherwise it's your income.
Member
Aug 18, 2004
307 posts
37 upvotes
dutchca wrote: What is the business?

If he is not involved or drawing a salary, then it should not impact his taxes.

He will no longer be able to claim your non-refundable tax credits, but if the business is successful, your income should more than make up for that.

I think what she is saying he also has his own business and is showing her as an employee to income split to get tax rate reduced ie: 2 incomes at 50,000 rather than 1 income at 100,000 which leads to a higher tax rate. Least I think that's what she's eluding too.
Newbie
Feb 18, 2012
8 posts
CALGARY
To clarify.....My husband has a full time job out of the home.I am a stay at home Mom and I am wanting to possibly start a cake decorating business.I will require a city business license and have to rent a commercial kitchen.Hubby will not be involved or be an employee of....Just me...He is worried he won't be able to claim me anymore on income taxes and last year I believe the Harper government implemented an income splitting allowance for couples to split the sole earners income..Not sure if this has been around for a long time or something new...I could be mistaken...The business won't make a huge profit it is basically just something to keep me home with the kids while still trying to bring in some earnings.I should also mention I collect the child tax credit...will this affect how much I receive or will I get anything at all if I start a business?It isn't much already....

Any ideas or suggestions....
Deal Addict
Feb 24, 2007
1371 posts
55 upvotes
cakesforkids wrote: To clarify.....My husband has a full time job out of the home.I am a stay at home Mom and I am wanting to possibly start a cake decorating business.I will require a city business license and have to rent a commercial kitchen.Hubby will not be involved or be an employee of....Just me...He is worried he won't be able to claim me anymore on income taxes and last year I believe the Harper government implemented an income splitting allowance for couples to split the sole earners income..Not sure if this has been around for a long time or something new...I could be mistaken...The business won't make a huge profit it is basically just something to keep me home with the kids while still trying to bring in some earnings.I should also mention I collect the child tax credit...will this affect how much I receive or will I get anything at all if I start a business?It isn't much already....

Any ideas or suggestions....

That income splitting is for pensions, ie. retirees. Well I'm not exactly up to date on tax changes, but I'm pretty sure if Harper announced actual income splitting, probably would've heard it by now since every paper/blog would be talking about it. That would be big news. Most, if not all your benefits will be affected, since most are income tested. While you'll come out ahead, more income vs. loss of benefits, its more of a matter at what effective tax rate you will be paying once you take into account loss of benefits.
Deal Addict
Dec 28, 2006
2497 posts
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Saskatoon
cakesforkids wrote: To clarify.....My husband has a full time job out of the home.I am a stay at home Mom and I am wanting to possibly start a cake decorating business.I will require a city business license and have to rent a commercial kitchen.Hubby will not be involved or be an employee of....Just me...He is worried he won't be able to claim me anymore on income taxes and last year I believe the Harper government implemented an income splitting allowance for couples to split the sole earners income..Not sure if this has been around for a long time or something new...I could be mistaken...The business won't make a huge profit it is basically just something to keep me home with the kids while still trying to bring in some earnings.I should also mention I collect the child tax credit...will this affect how much I receive or will I get anything at all if I start a business?It isn't much already....

Any ideas or suggestions....



In addition to the previous comments....


Your net income will reduce the spousal credit that your husband is eligible to claim. While you won't be paying tax on your net business income if it is under the basic exemptions, your husband effectively will be, since he will lose (in whole or in part) the spousal credit.

If your business isn't profitable you won't have any net income to worry about. You will however get audited sooner or later.
Conquistador wrote: One other thing you should know for future reference. If it is on the subject of taxes, listen to ghostryder. He knows his stuff.
Newbie
Feb 18, 2012
8 posts
CALGARY
GhostRyder...That is exactly what he is worried about..Sorry for the confusion....He also mentioned the audit thing as well.We used to have a construction company for 15 years so he is aware....I guess we will have to discuss it further...
Deal Fanatic
Feb 1, 2006
9645 posts
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Muskoka
cakesforkids wrote: GhostRyder...That is exactly what he is worried about..Sorry for the confusion....He also mentioned the audit thing as well.We used to have a construction company for 15 years so he is aware....I guess we will have to discuss it further...

Try playing with the Income Tax estimator at Walterharder.com, this will give you an idea of the impact of the tax impact. If your husband has an income between $40k and $80k, and your income goes from zero to $10,000 net income, the increased taxes will be $1,900-$2,100. You would pay no taxes up to that $10k point, but his annual taxes would go up by that amount.

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