CRA provides further TOSI examples

In a PowerPoint presentation at the December 3, 2018 CPA Canada Income Tax for the General Practitioner Course CRA mostly recycled previously-published examples of the operation of the tax on split income rules, but also presented a few new (albeit, not startling) examples.

B, aged 20, was issued 20% of the shares of Opco (a CCPC) as part of his compensation for programming work. Opco is majority-owned by an unrelated individual (A, aged 40). A dividend paid by Opco to B is not subject to TOSI given that it is not income from a related business because there is no “source individual” (A is not related to B).

A dividend paid by the family farming corporation to a family trust and distributed from the trust to inter alia an adult child who in the current year had averaged less than 20 hours a week during the farming season nonetheless qualified as an excluded amount from an “excluded business” given that the child (the specified individual) averaged more than 20 hours per week in the farming season for five prior taxation years.

The definition of an excluded share references inter alia a test of less than 90% of the business income of the corporation being from the provision of services. CRA indicated that where goods are provided in combination with a service and the goods are not incidental (e.g., auto repairs and home renovations) the revenue from the goods will be considered. Conversely, services can be incidental to the sale of goods, e.g., the delivery and installation of goods sold. CRA recognizes that billing practices and accounting systems may not specifically identify revenue from non-services, so that there is flexibility when reviewing such situations.

Neal Armstrong. Summaries of 3 December 2018 CPA Canada Roundtable, 2018-0773811C6 - Tax on Split Income under s. 120.4(1) - related business – (a)(ii), excluded business and excluded shares – (a)(i).