Income Splitting Law and Legal Definition
Income Splitting includes a number of arrangements. The essential feature of which is that income, which would have been taxed at a higher rate in the hands of the person who derived it, is taxed in the hands of another person at a lower rate.
The primary advantage of income splitting is that it reflects that the household rather than the individual is the basic economic unit. A family with one person earning $100,000 per year and another who doesn't work is no wealthier than a couple where each earns $50,000, yet the former will be taxed at a considerably higher rate due to progressive taxes. The main disadvantage is that it will cost the government several billion dollars per year.