CRA indicates that shares of a rental property company potentially may qualify as excluded shares for TOSI purposes

2018 STEP Roundtable Q.7 indicated that the shares of a corporation that did not generate business income (e.g., a corporation that generated rents that, given the level of activity, constituted income from property ) cannot qualify as excluded shares, whereas Examples 10 of CRA’s “Guidance on the application of the split income rules for adults” found that dividends received by siblings (now, over 25) following a sale of one of Real Estateco’s rental properties at a gain were from excluded shares, and Example 12 found that Spouse A, aged 65 who owned 95% of the shares of Investco, whose active business was actively managed by Spouse A (with no involvement of Spouse B) before it became a portfolio company, held that 95% bloc as excluded shares. When asked to reconcile Q.7 with the latter two examples, CRA stated:

[T]o demonstrate that the various exclusions were applicable not only to entities that earn income from an active business, such as a manufacturing corporation, but also to entities that carry on a business of earning income from property, such as a property rental business (in Example 10) or an investment management business (in Example 12), we had assumed that these corporations had a sufficient level of activity such that their income could be considered as derived from a business.

This response is essentially the same as that provided at 5 October 2018 APFF Roundtable, Q.9(a), except that some further comments were provided on Example 12 (regarding relief for spouses of business owners who turned 64 before the end of the year.)

Neal Armstrong. Summary of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.2 under s. 120.4(1) - excluded shares - (a)(i).