CRA finds that an estate is a blocker for accessing the TOSI excluded share exemption

The definition of “excluded amount” in the s. 120.4 tax on split income (TOSI) rules excludes the income of an individual aged 24 from excluded shares of the individual. The definition of “excluded shares” of a specified individual refers to shares “owned” by the individual that satisfy the three tests in paras. (a) to (c) including the 10% of votes and value test in para. (b).

CRA found that where an estate received a deemed dividend on the redemption of preferred shares of a corporation carrying on an investment business, that dividend when distributed by it to the family beneficiaries (age 24 or older) did not qualify in their hands as excluded amounts because they were not the owners of the preferred shares. It was irrelevant that the preferred shares satisfied the 10% of votes and value test, and that each beneficiary also directly held shares of the corporation that satisfied the 10% of votes and value test.

Neal Armstrong. Summary of 7 November 2018 External T.I. 2018-0777361E5 under s. 120.4(1) – excluded shares and s. 120.4(1.1)(b).