CRA states that shares subscribed for out of a joint bank account should not be treated as having been funded by a passive spouse in applying the reasonable return TOSI exception
An individual (Spouse B) who, quite unlike Spouse A, was not involved in the business of Opco, received distributions of s. 104(19) dividends from a discretionary family trust following their declaration and payment by Opco to Holdco, and by Holdco to that trust. These dividends could not qualify in Spouse B’s hands as being from excluded shares, and CRA also found that they could not qualify under the “reasonable return” exception in the “excluded amount” definition for exclusion from split income, notwithstanding that all the shares of Opco originally had been issued to Spouse A for cash subscription proceeds that came out of a joint bank account of Spouses A and B.
[A]lthough the cash used to fund Spouse A’s initial share investment … was stated to be from cash that came from a joint account … the legal form of these transactions strongly suggests that Spouse B has not made any direct or indirect contribution of property to Opco. …
[T]aking an overly broad interpretation that a specified individual has made an indirect financial contribution to a business such that the reasonable return exception in subparagraph (g)(ii) of the definition of excluded amount would apply to prevent the amount from being split income would appear to frustrate the underlying tax policy of the TOSI rules.
Neal Armstrong. Summary of 7 August 2019 External T.I. 2019-0814161E5 under s. 120.4(1) - reasonable return.