Martin Lee, Manu Kakkar, Thanusan Raveendran, "Section 48.1: TOSI Trap in Going Public", Tax for the Owner-Manager (Canadian Tax Foundation), Vol. 20, No. 1, January 2020, p. 4

Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (e)

Potential desirability of making s. 48.1 election even where shares are not QSBC shares (p. 4)

Capital gains arising from a disposition of shares that are qualified small business corporation (QSBC) shares are not subject to TOSI. …

There are times when it is tax-advantageous to trigger a capital gain under subsection 48.1(1) even if the shares are not QSBC shares—for instance, to utilize tax attributes such as expiring losses.

Potential for TOSI where making s. 38.1 election (p. 5)

Under the new rules, taxable capital gains subject to TOSI are no longer limited to transactions under the purview of subsections 120.4(4) and (5). … [T]he expanded definition of "split income" includes taxable capital gains from the disposition of all non-QSBC private corporation shares realized, or deemed to be realized, by most Canadian residents. Thus, it may no longer be beneficial to trigger a capital gain under subsection 48.1(1) when the shares do not qualify as QSBC shares in the situation discussed above, unless one of the other excluded-amount exemptions applies.

Summary Under
Tax Topics - Income Tax Act - Section 48.1 - Subsection 48.1(1)
TOSI rules have resulted in the s. 48.1(1) election being less frequently desirable
  • An election under s. 48.1(1) (where available) deems the electing shareholders to have disposed of their shares of a small business corporation for proceeds equalling the amount specified in the election. Capital gains from dispositions of qualified small business corporation (QSBC) shares are not subject to the tax on split income (TOSI). However, it may be advantageous to trigger a capital gain under subsection 48.1(1) even if the shares are not QSBC shares—for instance, to utilize tax attributes such as expiring losses.
  • The expanded "split income" definition includes taxable capital gains from the disposition of all non-QSBC private corporation shares realized, or deemed to be realized, by most Canadian residents. Thus, it may no longer be beneficial to trigger a capital gain under s. 48.1(1) where the shares are not QSBC shares, unless one of the other excluded-amount exclusions applies.