CRA Income Splitting Audit 2025 — Protect Your Family, Preserve Tax Savings, and Stop CRA Penalties with Mackisen CPA

In 2025, CRA’s Income Splitting Audit Program is intensifying its focus on family-owned corporations, professionals, and small businesses. With AI-powered data cross-matching between corporate filings and T1 returns, CRA now automatically flags dividend payments, salaries, and management fees to family members for review. Even legitimate income allocations under Section 120.4 (TOSI Rules) are being challenged as “unreasonable” or “non-active participation.” The result? Massive reassessments, double taxation, and 50% gross negligence penalties. At Mackisen CPA Auditors Montreal, we defend family corporations and entrepreneurs from CRA’s aggressive income splitting audits. Our CPA auditors and tax lawyers reconstruct your family’s financial structure, prove active participation, and protect your right to fair income distribution. We don’t let CRA punish families for working together — we defend your success with facts, law, and strategy.

Legal and Regulatory Framework

Income Tax Act (Canada)

• Section 120.4: Governs the Tax on Split Income (TOSI) rules and defines excluded business criteria.

• Section 18(1)(a): Allows deductions for reasonable salaries and business expenses.

• Section 67: Requires payments to be “reasonable” in relation to services rendered.

• Section 163(2): Imposes gross negligence penalties, which Mackisen can have cancelled under proper representation.

• Section 220(3.1): Enables CRA to cancel or reduce penalties and interest through the Taxpayer Relief Program.
  Tax Administration Act (Quebec)
  Revenu Québec mirrors TOSI and income splitting audit practices at the provincial level. Mackisen ensures both audits are handled simultaneously for full consistency.

Key Court Decisions

Bédard v. The Queen (2022): CRA must prove lack of active participation before applying TOSI penalties.
Thibault v. The Queen (2022): Salaries paid to family members are valid if supported by evidence of contribution.
Guindon v. Canada (2015): Honest reliance on professional advice eliminates gross negligence penalties.
Venne v. The Queen (1984): CRA must rely on verified facts, not assumption, when disallowing family compensation.
These rulings confirm that CRA income splitting audits can be overturned when supported by documentation and clear business purpose.

Why CRA Targets Income Splitting

CRA’s TOSI audit expansion focuses on identifying income distribution to low-income family members. Common 2025 triggers include:

• Dividends or salaries paid to non-active family members.

• Management fees or consulting payments without detailed contracts.

• Children or spouses listed as shareholders with minimal work records.

• Corporate reorganization transferring shares within the family.

• Large dividend payments issued during low-revenue periods.
  CRA assumes abuse — Mackisen proves contribution and legitimacy.

Mackisen’s Income Splitting Audit Defense Strategy

1. Audit Review: Analyze CRA’s reassessment and identify weak points in their interpretation of TOSI.

2. Evidence Reconstruction: Gather work logs, contracts, payroll records, and correspondence to prove family member participation.

3. Reasonableness Validation: Benchmark compensation against industry standards to demonstrate fairness.

4. Formal Objection Filing: Submit a Notice of Objection and challenge CRA’s reclassification of income.

5. Penalty and Interest Relief: Apply under Section 220(3.1) to remove financial penalties and restore compliance.
   Our strategy transforms CRA’s assumptions into documented, defensible family business practices.

Real Client Experience

A Montreal family corporation was reassessed $287,000 for “unreasonable dividends.” Mackisen proved active spousal management and secured a full reversal.
A Quebec professional firm was audited under TOSI for children’s dividends. Mackisen demonstrated ongoing contribution and CRA dropped all penalties.

Common Questions

Can CRA tax income paid to my spouse or children? Only if they were not actively involved — Mackisen provides proof of contribution and business need.
What counts as active participation? Documented work, management involvement, or regular contribution to operations. Mackisen ensures full compliance with Section 120.4.
Can CRA audit multiple years of family income? Yes — up to 10 years if CRA alleges misrepresentation. Mackisen enforces time limits and prevents overreach.
Can CRA penalize my accountant’s advice? No — Mackisen defends reliance on professional recommendations under case law.

Why Mackisen

At Mackisen CPA Auditors Montreal, we are Canada’s authority on family and corporate tax defense. Our integrated CPA and legal team ensures every payment, dividend, and salary within your family corporation stands on firm legal ground. We act fast, present facts powerfully, and win consistently — because your family’s teamwork is not a loophole, it’s a legacy. When CRA audits your income splitting, Mackisen audits their logic.
Call Mackisen CPA Auditors Montreal today for your 2025 Income Splitting Audit Defense Consultation. The first meeting is free, and your protection starts immediately.