Income splitting is the practice of shifting income from a higher-income family member to lower-income family members so that, taken together, the family pays less tax by using more than one person's lower tax brackets and credits. In the private-corporation context it has historically been done by paying dividends to family-member shareholders.
The scope for income splitting is now constrained by the tax-on-split-income (TOSI) rules, which apply the top rate to split income unless an exclusion is met, and by the attribution rules, which can attribute income back to the person who transferred the underlying property. Compliant splitting still exists — for example, through family members genuinely active in the business, prescribed-rate loan arrangements, pension splitting, and spousal RRSPs — but it must be structured around the specific rules rather than assumed.