The new split income rules rest on a conceptually flawed foundation

The concept under the expanded split-income rules of linking business income or gains to individual contribution based on a “reasonable return” thereon is inherently intractable:

Returns are random, often yielding unintended results, from large gains to bankruptcy. There's often no demonstrable way to connect the results back to the contributions of specific people. The notion that one can do so is closely related to the … Marxist … labour theory of value – an intuitive notion that has since been thoroughly debunked… .

Paradoxically, the rules do not accommodate family members adjusting their relative gains to accord with the new normative standard. Suppose that a corporation that is owned 50-50 by two spouses is sold, and that their relative contribution to the success of the company is considered to be 60-40:

In this scenario, 20 per cent of one spouse's gain is split income, and taxed at the highest rate. There is no way around this, except to manipulate the price paid by the vendor to each spouse. That tax-guided manipulation may not be acceptable, or even possible because of the attribution rules.

Neal Armstrong. Summary of Kevyn Nightingale, "Private Company Income-Splitting Proposal Part 3: The Government Responds", Tax Topics (Wolters Kluwer), No. 2389-90, December 21, 2017, p. 1 under s. 120.4(1) – reasonable return – para. (b).