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Physician Tax Guide · Ontario · Licensed CPA

Income Splitting for Doctors: What Still Works After the TOSI Rules

The old strategy of paying dividends to a spouse through a medical corporation was shut down for doctors by the Tax on Split Income rules. This guide explains why the excluded shares exception does not work for a medical professional corporation, which splitting methods still do, and how a physician can legitimately move income to lower-taxed family members in 2026. Written by a licensed Canadian CPA who works with physicians.

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A doctor generally cannot income-split simply by giving a spouse shares in a medical professional corporation and paying dividends. Since 2018, the Tax on Split Income rules tax those dividends at the top marginal rate, and the excluded shares exception that saves other business owners is specifically denied to medical corporations. Splitting still works for a physician, but only through the routes TOSI leaves open: a family member who genuinely works in the practice, a reasonable salary, the age 65 exception, spousal RRSPs and prescribed-rate loans.

Why Doctors Cannot Split Income the Way They Used To

Before 2018, a common plan was straightforward: give a spouse or adult child non-voting shares in the medical corporation and pay them dividends taxed in their lower bracket. The 2018 expansion of the Tax on Split Income rules, known as TOSI, ended that for most family members. TOSI taxes dividends and certain other income received from a private corporation by a family member at the top marginal rate, wiping out the benefit, unless the family member fits one of a defined set of exceptions.

For doctors the position is harder than for other business owners, because the one exception most owners rely on is closed to medical corporations. Understanding which doors are shut and which remain open is the whole game. For the broader picture please see our accounting for doctors.

The Exception That Does Not Work for Doctors

This is the single most important point on the page, and the one physicians are most often given wrong advice about.

The excluded shares exception is not available to a medical professional corporation. For most private companies, a family member aged 25 or older who owns at least 10% of the votes and value can receive dividends free of TOSI. But the CRA's definition of excluded shares specifically excludes a professional corporation carrying on the practice of a medical doctor. So the classic plan of giving a spouse 10% of the shares and paying dividends does not shelter a doctor's family from TOSI. Advice built on it is simply wrong for a physician.

The same restriction applies to dentists, lawyers, accountants, veterinarians and chiropractors. It is a deliberate carve-out aimed at professional practices, so a doctor has to rely on the other exceptions instead.

What Still Works: The Routes TOSI Leaves Open

Splitting income as a physician is still possible. It just has to run through an exception that a medical corporation can actually use, or through a mechanism that sits outside TOSI altogether.

MethodHow It Splits IncomeWorks for a Doctor?
Family member works in the practiceExcluded business exception, 20+ hours a weekYes, with genuine documented work
Reasonable salarySalary for real work sits entirely outside TOSIYes, if reasonable for the work done
Age 65 exceptionDividends to a spouse where the doctor is 65+Yes, at and after 65
Spousal RRSPShifts future retirement income to the spouseYes
Prescribed-rate loanInvestment income taxed in the spouse's handsYes, with a proper loan
Excluded shares (10% ownership)Dividends free of TOSI on a 10% stakeNo, denied to medical corporations

The Excluded Business Exception: Family Who Actually Work

This is the most valuable route still open to a physician, because it does not depend on the type of corporation. Where a family member genuinely works in the practice, dividends to them can escape TOSI.

  1. The 20-hour test. A family member who works an average of at least 20 hours a week in the practice during the year meets the excluded business exception for that year's dividends.
  2. The five-year test locks it in. Once a family member has worked 20+ hours a week in any five prior years, their dividends are excluded from TOSI for the rest of their life, even after they stop working.
  3. The work must be real and documented. Managing the practice's books, scheduling, billing, HR or administration all count, but the hours and the role have to be genuine and recorded, because this is exactly what the CRA tests.

Undocumented work is the most common failure. The excluded business exception is factual, so a spouse said to work in the practice with no timesheets, no defined role and no evidence will not survive a CRA review. The dividends then fall back into TOSI at the top rate, often across several years at once. If a family member genuinely works in the practice, the hours and duties must be documented as they happen, not reconstructed afterward.

Reasonable Salary: The Simplest Route

Salary paid to a family member for real work is not split income at all, so TOSI never applies to it. If a spouse or adult child actually does bookkeeping, reception, billing or administration for the practice, the corporation can pay them a salary that is reasonable for that work, deduct it, and shift that income into their lower bracket. The catch is the word reasonable: the pay has to match what you would pay an arm's-length employee for the same duties. Overpaying a family member for token work is the fastest way to draw a reassessment. Please see our physician accounting services.

The Age 65 Exception

TOSI eases considerably once a physician reaches 65. At that point, dividends paid to a spouse are treated much like pension income splitting, and can be received by the spouse without TOSI applying, mirroring the relief that lets retirees split pension income. For a doctor approaching retirement, this reopens dividend splitting with a spouse that was closed during the working years, and it becomes a central part of the drawdown plan.

Before 65, the working-years plan is different from the retirement plan. During practice, a physician relies on the excluded business exception, salary and registered strategies. From 65, dividend splitting with a spouse reopens. Building the plan so it shifts cleanly from one phase to the next is where a lot of the long-run saving is. See our corporate tax planning.

Registered and Loan Strategies Outside TOSI

Two more tools sit entirely outside the TOSI rules, so they work regardless of the professional-corporation restriction.

StrategyHow It Works
Spousal RRSPThe higher-earning doctor contributes to a spousal RRSP, shifting future withdrawals into the lower-income spouse's hands
Prescribed-rate loanThe doctor lends funds to a spouse or family trust at the CRA prescribed rate; the spouse invests, and the investment income is taxed to them
Pension income splittingFrom 65, eligible pension and certain annuity income can be split with a spouse on the tax return
Individual Pension PlanAn IPP can create larger deductible contributions for an incorporated physician than an RRSP allows

The prescribed-rate loan window moves with interest rates. The strategy works best when the CRA prescribed rate is low, because the spouse only has to beat that rate on their investments for the split to add value. The rate is set quarterly, so the timing of locking in a prescribed-rate loan matters, and it is worth setting up while the rate is favourable rather than waiting.

What the CRA Looks For

Because TOSI is factual and physician corporations are a known target, the CRA reviews these arrangements closely. The failures are predictable.

  1. Dividends to a spouse who does not work in the practice. With the excluded shares route closed to doctors, a dividend to a non-working spouse under 65 is caught by TOSI at the top rate.
  2. Claimed work with no evidence. Asserting a family member works 20 hours a week with no timesheets, job description or output fails the excluded business test on review.
  3. Unreasonable salary. Paying a family member far more than the work is worth is disallowed to the extent it is unreasonable.
  4. Dividends to minor children. TOSI applies to virtually all private-corporation income received by a minor, so splitting to children under 18 does not work.

Getting TOSI wrong is expensive and retroactive. When the CRA applies TOSI, the income is taxed at the top marginal rate, and where the same flawed arrangement ran for several years the reassessment covers all of them, with interest. For a physician, that can turn an assumed saving into a significant bill. The rules are technical and fact-specific, so the structure and the documentation have to be right from the start.

Case Study: Physician, Ontario

A family physician came to us having been advised by a previous accountant to issue non-voting shares to his non-working spouse and pay her dividends, on the theory that a 10% stake would exempt them. For a medical professional corporation that advice was wrong, and the dividends were fully exposed to TOSI at the top rate across two years. We corrected the reporting before it compounded further, then rebuilt the plan on routes that actually work for a doctor: his spouse genuinely took over the practice's bookkeeping and administration, so we documented her role and hours to meet the excluded business exception, set her a reasonable salary for that work, and layered in a spousal RRSP and a prescribed-rate loan while the rate was low. We also mapped the shift to dividend splitting once he reaches 65. He ended up splitting more income than the original flawed plan would have delivered, on a footing that survives a CRA review. The figures here are illustrative of the work we do, not a specific client file.

Flawed plan corrected. Splitting rebuilt on exceptions that work. Retirement phase mapped.

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Frequently Asked Questions: Income Splitting for Doctors

Can a doctor income-split with a spouse in Canada?
Yes, but not the old way. Since 2018 the Tax on Split Income rules stop a doctor from simply paying dividends to a non-working spouse through a medical corporation. Splitting still works through routes TOSI leaves open: a spouse who genuinely works in the practice, a reasonable salary, the age 65 exception, spousal RRSPs and prescribed-rate loans.
What is TOSI?
TOSI is the Tax on Split Income, a set of rules in section 120.4 of the Income Tax Act, expanded in 2018, that taxes certain income received by family members from a private corporation at the top marginal rate. It removes the benefit of paying dividends to lower-income family members unless the recipient qualifies for a defined exception, called an excluded amount.
Why can't doctors use the 10% excluded shares exception?
Because the CRA definition of excluded shares specifically excludes a professional corporation that carries on the practice of a medical doctor. So even if a spouse owns 10% or more of the votes and value, dividends on those shares in a medical corporation are still caught by TOSI. The same carve-out applies to dentists, lawyers, accountants, veterinarians and chiropractors.
What is the excluded shares exception?
For most private corporations, a family member aged 25 or older who owns at least 10% of the votes and value can receive dividends free of TOSI, provided the company is not a professional corporation and earns less than 90% of its income from services. It is a powerful route for many business owners, but it is closed to medical professional corporations, so doctors cannot rely on it.
What income splitting still works for a physician?
The excluded business exception where a family member works at least 20 hours a week in the practice, a reasonable salary for genuine work, the age 65 exception for dividends to a spouse, spousal RRSPs, prescribed-rate loans, and pension income splitting from 65. Each either fits a TOSI exception a medical corporation can use or sits outside TOSI entirely.
What is the excluded business exception?
It exempts dividends from TOSI where the family member is actively engaged in the business on a regular, continuous and substantial basis, deemed met if they work an average of at least 20 hours a week. It does not depend on the type of corporation, so it is the main route open to doctors, provided the work is genuine and documented.
How many hours must my spouse work to avoid TOSI?
An average of at least 20 hours a week in the practice during the year meets the excluded business exception for that year. Work such as bookkeeping, billing, scheduling, HR and administration counts. The hours and the role must be genuine and documented, because the CRA tests this factually rather than taking the claim at face value.
What is the five-year rule for the excluded business exception?
Once a family member has worked an average of at least 20 hours a week in the business in any five prior taxation years, their dividends are excluded from TOSI for the rest of their life, even after they stop working. This is valuable for a spouse who worked in the practice in its earlier years and later steps back.
Can I pay my spouse a salary instead of dividends?
Yes, and salary for genuine work sits entirely outside TOSI. If your spouse actually does bookkeeping, reception, billing or administration for the practice, the corporation can pay a salary that is reasonable for that work, deduct it, and shift the income to their lower bracket. The salary must match what an arm's-length employee would be paid for the same duties.
What does a reasonable salary mean?
It means pay that matches the fair market value of the work actually done, what you would pay an unrelated employee for the same role and hours. Paying a family member a token-work salary far above market is disallowed to the extent it is unreasonable, and it draws CRA attention. The work has to be real and the pay has to fit it.
Does TOSI apply after age 65?
It eases substantially. From the year a physician turns 65, dividends paid to a spouse can be received without TOSI applying, mirroring the relief that lets retirees split pension income. This reopens dividend splitting with a spouse that was closed during the working years, and it becomes central to the retirement drawdown plan.
Can I split income with my adult children?
Only if they fit an exception. An adult child aged 18 or older who genuinely works 20+ hours a week in the practice can qualify under the excluded business exception, and a reasonable salary for real work is always outside TOSI. But dividends to an adult child who does not work in the practice and does not otherwise qualify are caught by TOSI at the top rate.
Can I split income with my minor children?
No. TOSI applies to virtually all private-corporation income received by a minor under 18, with only very narrow exceptions. Paying dividends to minor children through a medical corporation does not achieve any splitting benefit; the income is taxed at the top marginal rate.
What is a spousal RRSP and how does it split income?
A spousal RRSP lets the higher-earning doctor contribute to an account owned by the lower-income spouse, using the doctor's own contribution room. In retirement, the withdrawals are taxed in the spouse's lower-income hands rather than the doctor's, shifting future income. It sits outside TOSI entirely, so the professional-corporation restriction does not affect it.
What is a prescribed-rate loan?
The doctor lends money to a spouse or a family trust at the CRA prescribed interest rate, the spouse invests it, and the investment income is taxed to the spouse rather than the doctor. As long as the interest is charged and paid correctly each year, the income splits. It works best when the prescribed rate is low, since the investments only need to beat that rate.
What is the current prescribed rate?
The CRA prescribed rate is set quarterly. It was 3% for the second quarter of 2026. Because the rate moves, the timing of setting up a prescribed-rate loan matters, and locking in while the rate is low is preferable, since the rate on an existing loan is fixed for its life if the loan is structured correctly.
Can a family trust help a doctor split income?
It can, but TOSI is tested beneficiary by beneficiary, so a trust does not defeat the rules on its own. A beneficiary who works in the practice or otherwise qualifies for an exception can receive dividends free of TOSI, while a beneficiary who does not is caught. A trust can still be useful for other reasons, but it is not a shortcut around TOSI for a non-working beneficiary.
Can I use an Individual Pension Plan to save more?
Yes. An Individual Pension Plan, or IPP, can allow an incorporated physician to make larger deductible contributions than an RRSP permits, especially at older ages. It is not an income-splitting tool in itself, but it is a powerful complement to a splitting plan, increasing tax-deferred retirement savings inside the corporate structure.
Is income splitting still worth it for doctors after TOSI?
Yes. The blunt dividend-sprinkling of the past is gone, but a properly built plan using the excluded business exception, reasonable salary, registered and loan strategies, and the age 65 exception can still move meaningful income to lower-taxed hands. It takes more care and documentation than before, which is exactly why it should be built with a CPA.
What happens if the CRA applies TOSI to my dividends?
The income is taxed at the top marginal rate, removing the splitting benefit entirely, and where the same flawed arrangement ran for several years the reassessment covers all of them with interest. For a physician this can turn an assumed saving into a large bill, which is why the structure and documentation need to be correct from the outset.
Do I need to document my spouse's work in the practice?
Yes, thoroughly. The excluded business exception is factual, so timesheets, a defined role, a job description and evidence of output are what make it hold up. A spouse said to work in the practice with nothing to support it will fail on review, and the dividends fall back into TOSI. Documentation created as the work happens is far stronger than anything reconstructed later.
Can my spouse own voting shares in my medical corporation?
Share ownership by a spouse is possible subject to the provincial rules for medical professional corporations, which limit who may hold shares and often restrict voting shares to the physician. But ownership alone does not defeat TOSI for a doctor, because the excluded shares exception is denied to medical corporations. The plan has to rest on the exceptions that do work.
Does paying myself a salary instead of dividends help?
It changes your own planning rather than splitting to family, but salary to you builds RRSP room and can be part of an overall strategy. For splitting, the salary that matters is a reasonable salary to a family member who actually works in the practice, since that shifts income to them outside TOSI. We model the salary-and-dividend mix for both you and any working family member.
Are these strategies legal?
Yes. Every route described here, the excluded business exception, reasonable salary, the age 65 exception, spousal RRSPs, prescribed-rate loans and pension splitting, is expressly permitted under the Income Tax Act and CRA guidance. What is not permitted is dressing up an arrangement that does not meet the conditions, such as claiming work that did not happen. Done properly, income splitting is legitimate planning.
How is a doctor's situation different from other business owners?
The key difference is that the excluded shares exception, which lets many business owners split dividends on a 10% family stake, is specifically denied to medical corporations. So a doctor cannot use the most common splitting route and must rely on the excluded business exception, salary and registered strategies instead. Advice written for general business owners can be flatly wrong for a physician.
When should I set up an income-splitting plan?
Ideally before you pay any dividends to family, and reviewed every year. Because TOSI is fact-specific and the exceptions depend on circumstances that change, the plan should be built at the start and revisited annually as roles, ages and rates change. Waiting until after dividends are paid can leave a problem that has to be corrected rather than avoided.
How much does physician tax planning cost?
Income-splitting and corporate tax planning are part of our physician accounting work, from $150 per month, quoted as a flat fee upfront with no hourly billing. All fees include HST. Please use our pricing calculator for an exact figure.
How do I get started?
Please book a free consultation and tell us about your practice, whether you are incorporated, your family situation, and whether anyone helps run the practice. We review what splitting is available to you, build a plan on the routes that work for a medical corporation, and document it to survive a CRA review. Book Free Consultation →

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