CRA will apply a tracing approach for split income purposes where a shareholder-spouse works 20 hours (as measured by time logs) in only one of the corporation’s businesses

CRA provided a number of comments on the split income rules:

• In addition to repeating previous comments respecting shares of holdcos not being excluded shares, it confirmed that there was a similar problem for dividends from a related manufacturing company paid through a family trust.
• Where a shareholder-spouse works in only one of two businesses of the corporation, an excluded amount determination respecting the worked-in business requires “separate accounting for each business and a tracing of funds.”
• CRA will cut some slack with respect to pre-2018 years, but on a going forward basis, if reliance will be placed on the spouse or child having worked 20 hours per week in a business, “the ongoing maintenance of [timesheets, schedules, or logbooks] in respect of any family members involved in the business will ensure that businesses are able to comply with the new rules.”
• Respecting the requirement for excluded shares to be of a corporation that derives less than 90% of its business “income” (i.e., revenue) from the “provision of services,” CRA repeated some previous examples about replacement part sales by plumbers and mechanics being good, whereas charges by an office cleaner for cleaning supplies are to be ignored - but then went on to note that:

We are in the process of preparing examples to illustrate how the determination of whether less than 90% of the income of a corporation is from the provision of services is made.

Neal Armstrong. Summaries of 25 May 2018 External T.I. 2018-0761601E5 under s. 120.4(1) – excluded shares – para. (b), excluded shares – subpara. (a)(i), excluded amount – subpara. (e)(ii) and s. 120.4(1.1)(a).