Exclusion Rule #1: The family member is 18 years of age or older and has a “regular, continuous, and substantial” stake in the business. This standard is based on working at least 20 hours per week in the business in any previous 5 years of the business (even if not consecutive). In order to prove this, it is advisable to keep records or logs of the number of hours that family members work in your business contemporaneously to their work.
Exclusion Rule #2: The family member is 25 years of age or older and owns at least 10% of the corporation’s shares and votes directly (i.e. not through a trust), and where the corporation is a private corporation (ie. not a professional corporation) that derives its income primarily from the sale of goods (i.e. where less than 10% of its income comes from the provision of services) and where the corporation does not earn income directly or indirectly from another business owned by the corporation.
Exclusion Rule #3: The family member is 25 years or age of older and is receiving dividends of the family corporation based on a “reasonable return” on his work or “safe harbor capital return” on the contribution of property.
Exclusion Rule #4: The owner of the corporation who wishes to income split with a lower income earning spouse is at least 65 years of age or older.