CRA indicates that a subsequent bequest of Opco shares from the active mother converts a previous bequest of shares from the inactive father into good shares for TOSI purposes

Mr. A (who had a passive role in Opco’s business) predeceased Mrs. A (who had been actively involved for more than five years), and their surviving children (who were inactive) received a bequest of some shares of Opco directly from Mr. A, and then some from Mrs. A.

S. 120.4(1.1)(b)(ii) initially would not be satisfied for the shares they received from Mr. A, so that the dividend income thereon would be subject to the tax on split income (TOSI). However, once they had received the bequest from Mrs. A, any dividends received on any of their Opco shares (from the taxation year in which they inherited Mrs. A’s shares onward) would not be subject to TOSI, including the shares previously bequested by Mr. A.

Neal Armstrong. Summary of 7 June 2019 STEP CRA Roundtable, Q.6(b) under s. 120.4(1.1)(b)(ii).