Skip to content

Spousal Dividend Transfer

Are you and your spouse looking to reduce your overall tax bill and save money? One effective strategy is to transfer dividends to your spouse. This method can help you take advantage of your spouse's lower tax rate and ultimately save money. In this step-by-step guide, we'll show you how to transfer dividends to your spouse and save on taxes.

Step 1: Check Your Eligibility

Before you can transfer dividends to your spouse, you must make sure that you are eligible. Both you and your spouse must be Canadian residents and either married or in a common-law relationship. Additionally, the dividends must be from Canadian corporations that are not considered to be "excluded dividends."

Step 2: Determine Your Available Dividend Tax Credit

When transferring dividends to your spouse, you'll want to maximize the available dividend tax credit. The dividend tax credit can reduce the taxes owed on dividends received. To determine your available credit, you'll need to look at your T5 slips, which will show the dividends received and the corresponding tax credit.

Step 3: Choose the Dividend Amount to Transfer

Once you know your available dividend tax credit, you can choose the number of dividends to transfer to your spouse. The goal is to transfer enough dividends to make use of your spouse's lower tax rate, while still maximizing the available tax credit.

Step 4: Complete the T1032 Form

To transfer dividends to your spouse, you'll need to complete the T1032 form. This form is used to report the transfer of eligible dividends between spouses. On the form, you'll need to provide your and your spouse's personal information, including names and social insurance numbers. You'll also need to indicate the amount of eligible dividends you're transferring and provide information about the corporations that issued the dividends.

Step 5: File Your Taxes

Finally, you'll need to file your taxes and include the T1032 form. You and your spouse will need to file separate tax returns, but you can include the T1032 form with your respective returns. If you're using tax software, it should prompt you to include the T1032 form when you indicate that you're transferring eligible dividends.

By following these steps, you can transfer dividends to your spouse and take advantage of their lower tax rate, while maximizing the available dividend tax credit. This strategy can ultimately help you save money on your taxes as a family. In conclusion, spousal dividend transfers can be an effective way for couples to save money on their taxes. By transferring eligible dividends to a spouse with a lower income, couples can take advantage of their lower tax bracket and reduce their overall tax bill. It's important to note that there are certain requirements and limitations to spousal dividend transfers, so it's crucial to consult with a tax professional or use tax software to ensure that you are eligible and properly completing the process.

At Censea Business Solutions we understand that running a business can be time-consuming and stressful, especially during tax season. That's why we offer a range of tax services to help you save time and money and ensure that your taxes are prepared accurately and on time. Contact us today to learn more and schedule a consultation. Remember, proper planning and preparation can make all the difference in your business's financial success.

Jennifer Walsh, CPB

Article by Jennifer Walsh, CPB

Jennifer Walsh has been a bookkeeper for over 20 years and she's loved every minute of it. She loves helping business owners reach their financial goals so they can live the life they love, without having to worry about the numbers.