CRA reaffirms that income derived from a prior year’s sale of an excluded business is not excluded from the TOSI rules

ABC Co., which was wholly-owned by a family trust, of which Mr. and Mrs. A are beneficiaries, carried on a trucking business in which both were actively engaged on a regular, continuous and substantial basis throughout the many years of operation. The proceeds of the sale of this business in 2018 were used to establish an investment business in which only Mrs. A is active.

In finding that the excluded business exception under the split income rules will be unavailable to Mr. A, CRA indicated that any taxable dividends received by him are considered to be derived directly or indirectly from such investment business – so that, since he is not actively engaged in that business, such amounts will not be “derived directly or indirectly from an excluded business” of Mr. A “for the year.” Effectively, this is a finding that such amounts are not derived indirectly from the former trucking business, even though the proceeds of the sale thereof indirectly gave rise to such dividends. Consequently, the taxable dividend received by Mr. A in, say, 2019 are subject to TOSI unless another exception applies.

A more detailed response to the same question was provided in 2019-0792001E5 F.

Neal Armstrong. Summary of 3 December 2019 CTF Roundtable, Q.8 under s. 120.4(1) – excluded amount – (e)(ii).