CRA finds that net rental income distributed by a spousal trust were excluded amounts given previous direct involvement of deceased husband

A spousal trust for Jocelyne (“Trust”) holds five commercial rental properties (generating $250,000 in annual rents, which had been managed by her deceased husband). Is the income generated by Trust and distributed to Jeanne subject to the tax on split income (TOSI) where the Trust investments are managed by Jocelyne’s son Julien?

CRA noted that there is a specific inclusion under s. (c)(ii)(D ) of “split income” for net rental income where a source individual (Julien) is actively engaged on a regular basis in the activities of Trust, irrespective of whether the rental income was property income or business income – but then went on to indicate that the distributed rental income likely would be excluded amounts (and, therefore, not subject to TOSI) under s. 120.4(1.1)(c)(ii) given that the deceased husband had carried on the rental operation directly rather than through a source individual, so that it could not have constituted a related business in respect of him.

CRA answered eight TOSI questions at the two 2018 APFF Roundtables. Honest, this is the last.

Next up: does s. 55(2) apply to an extraordinary dividend paid out of proceeds of an illness policy (Q.5); and why do the s. 85(1) rollover rules not work properly for Class 14.1 property transfers (Q.6)?

Neal Armstrong. Summary of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.4 under s. 120.4(1) – split income - (c)(ii)(D) and s. 120.4(1.1)(c)(ii).