Tax On Split Income (TOSI)

What is Tax on Split Income (TOSI)?

Tax on split income (TOSI) rules apply where a family member has received income for an attempt to reduce and split taxes. The TOSI rules apply to individuals under the age of 18 receiving income from a family member when they were not active in the business (ex. A child receiving a dividend). If the income was found to be subject to TOSI rules, it would be taxed at the highest marginal rate.

Starting on January 1, 2018, the Government of Canada introduced an expansion to the tax on split income (TOSI) rules. TOSI rules can now apply to related adults who have not made a sufficient contribution to the business and any income deemed to be subject to TOSI will also be taxed at the highest marginal rate.

There are some important exclusions which can protect individuals from being subjected to TOSI. These include:

  • Excluded Businesses
    • Can apply to adult family members that are regularly engaged in the business and work an average of 20 hours a week in the business
  • Excluded Shares
    • Can apply to income or capital gains from the disposition of shares held by individuals age 25 or older
    • To be considered “excluded shares”, the individual must hold at least 10% of the voting shares and value of the company. 90% or less of the business income of the corporation is from provision of services, and 90% or more of total income is not received from related businesses

The new rules surrounding TOSI are complicated and CRA interpretations are still changing. Contact us if you would like to discuss this further.

CRA: TOSI applying to adults
TOSI info from BDO

Disclaimer: This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, nor does it constitute solicitation to buy or sell any securities referred to. Any tax information published on this blog is based on the facts provided to us and on current tax law (including judicial and administrative interpretation) during the time of publication. Tax law can change (at times on a retroactive basis) and these changes may result in additional taxes, interest, or penalties. Practice due diligence and if in doubt, speak with a member of our team.

2024 Federal Budget: Capital Gains Tax

New GST/HST Guidelines for NFT Sales

Understanding the First Home Savings Account (FHSA)