Tax on split in­come

Asian Journal - - WORLD -

Tax Ques­tion:

What are the new Tax on Split In­come rules (TOSI)?


On De­cem­ber 13th, 2017, the Cana­dian gov­ern­ment re­leased the draft leg­is­la­tion for the new tax rules on tax on split in­come. Un­der these new rules, all split in­come is taxed at the high­est per­sonal rate un­less you meet one of the TOSI ex­clu­sions.


As pro­posed in July 2017, the new tax rules limit the abil­ity to save taxes by split­ting in­come amongst fam­ily mem­bers. Ef­fec­tive for the 2018 cal­en­dar year, all split in­come is now sub­ject to TOSI rules and can be taxed at the high­est per­sonal rate un­less you meet one of the TOSI ex­clu­sions.

To be ex­cluded from TOSI rules un­der this op­tion, all the in­di­vid­u­als re­ceiv­ing div­i­dends must be ac­tively en­gaged on a reg­u­lar, con­tin­u­ous and sub­stan­tial bases in ei­ther: • the cur­rent year;

• or in five of the pre­vi­ous years.

To be ex­cluded from TOSI rules un­der this op­tion, all of the fol­low­ing must be true: • All of the in­di­vid­u­als re­ceiv­ing split in­come must each own 10% or more of both the vot­ing shares and 10% or more of the value of the com­pany.

• The cor­po­ra­tion earns less than 90% of its in­come from pro­vid­ing ser­vices.

• The cor­po­ra­tion is not a pro­fes­sional cor­po­ra­tion (i.e., a cor­po­ra­tion that car­ries on the pro­fes­sional prac­tice of an ac­coun­tant, den­tist, lawyer, med­i­cal doc­tor, vet­eri­nar­ian or chi­ro­prac­tor).

• Less than 10% of the in­come of the cor­po­ra­tion from the last year was from an­other re­lated busi­ness (i.e., the cor­po­ra­tion is not a rental/ man­age­ment com­pany or hold­ing com­pany in a cor­po­rate group). If nei­ther of the above ex­clu­sions have been met, the in­di­vid­u­als are en­ti­tled to re­ceive a rea­son­able re­turn based upon their ef­fort, cap­i­tal in­vested, risks as­sumed and ap­pro­pri­ate bench­marks for in­dus­try re­turn on in­vest­ment. Any earn­ings or re­turn on in­vest­ment which CRA deems to be be­yond rea­son­able will be sub­ject to the high­est per­sonal tax rate.

Dawn Loeffler, (Hons), CPA, CA Man­ager, Gil­mour Group CPA’S

Email: [email protected]­ Dis­claimer: The in­for­ma­tion con­tained in this ar­ti­cle is

BA in­tended solely to pro­vide gen­eral guid­ance on mat­ters of in­ter­est for the per­sonal use of the reader, who ac­cepts full re­spon­si­bil­ity for its use. While we have made ev­ery at­tempt to en­sure the in­for­ma­tion con­tained in this ar­ti­cle has been ob­tained from re­li­able sources and ac­cu­rately de­scribed herein. SW Me­dia Group and Gil­mour Group In­cor­po­rated is not re­spon­si­ble for any er­rors or omis­sions, or for the re­sults ob­tained from the use of this in­for­ma­tion. Be­fore tak­ing any ac­tion that might af­fect your per­sonal and busi­ness fi­nances, you should con­sult a qual­i­fied pro­fes­sional ad­vi­sor.

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