Tax on split income (TOSI)

The CRA’s page on tax on split income points readers to its guidance on income sprinkling. The tax is relevant where a family company pays dividends to a spouse or other family member, and to a buyer reviewing how the seller was paid.

How it works

The CRA says you are generally subject to the tax if you are a specified individual and have split income in the year that is not an excluded amount. Split income includes taxable dividends on shares of a corporation, other than shares of a class listed on a designated stock exchange or of a mutual fund corporation, and shareholder benefits. Excluded amounts include income not derived from a related business, and income from an excluded business. Section 120.4 of the Act sets the rules; it defines an excluded business as one in which the individual is actively engaged on a regular, continuous and substantial basis, in the year or in any five prior taxation years.

What to ask

• Which family members received dividends, and from which class of shares
• Whether the accountant concluded an excluded amount applied, and on what facts
• Whether a family trust was involved

See how discretionary family trusts are used in succession.