CRA indicates that no TOSI tax applied to a dividend received from the surviving step-mother’s company
Mr. A bequeathed all the common shares of Opco to his surviving spouse, Ms. B, who was actively engaged on a regular, continuous and substantial basis in its business. Opco paid a dividend on the discretionary dividend shares held by Son A, who was the son of Mr. A, but not of Ms. B.
CRA noted that following the death of Mr. A, Son A no longer qualified as Ms. B's child under s. 252(1)(c) . Since she was now unrelated, Ms. B was not a "source individual" in respect of the specified individual (Son A). This, in turn, meant that Opco's business did not constitute a "related business" in respect of Son A , so that Son A could benefit from the "excluded amount" exclusion in s. 120.4(1)(e)(i): no TOSI.
Neal Armstrong. Summary of 11 June 2019 External T.I. 2019-0795291E5 F under s. 120.4(1) – related business.