Auditors should not analyze a reasonable return for TOSI purposes if the taxpayer has made a good faith attempt

An excluded amount for tax on split income (TOSI) purposes includes, where the specified individual has attained age 24, a “reasonable return” in respect of the individual. Paul Wilson (Director, Medium Business Audit Division, Small and Medium Enterprises Directorate) elaborated on the statement in 2018-0771851E5 that “CRA does not intend to generally substitute its judgment of what would be considered a reasonable amount where the taxpayers have made a good faith attempt to do so... .”

Auditors are instructed to, first, question the taxpayers to determine what steps they took to verify that there was or was not split income, and if there has been a good faith attempt, then the auditors do not need to question further. Only if there has not been a good faith attempt will the auditor examine the contribution of the relevant factors such as of property or labour, and risk incurred.

Neal Armstrong. Summary of 2 December 2019 CTF Conference - Paul Wilson in "New Taxation Rules for Private Corporations: So far, so reasonable?" under “Reasonable return” under s. 120.4(1) – “reasonable return”.