There may be double taxation of FAPI under the TOSI rules

Where an individual shareholder has a foreign accrual property income (FAPI) inclusion respecting his or her shares of a controlled foreign affiliate, there typically will be double taxation if the individual also receives dividends from the CFA (corresponding, say, to the amount of the FAPI) that are subject to the tax on split income (TOSI). Even if a s. 91(5) deduction is available respecting the dividends received from the CFA, this deduction (or the more likely deduction claimed under s. 20(1)(ww)) are not relevant to the imposition of TOSI on those dividends.

A variant of the more obvious example of this situation is where Mr. A and Ms. B are the equal shareholders of both Passive Foreignco and Active Foreignco (the shares of which are not excluded shares for TOSI purposes because it earns only services fees). Active Foreignco earns fees from Passive Foreignco which are deemed to be FAPI of Mr. A and Ms. B under s. 95(2)(b) and in the case, say, of Ms. B are also subject to TOSI – thereby perhaps resulting (if she is an Ontario resident) in an effective tax rate of 107%.

Neal Armstrong. Summary of Stan Shadrin, Manu Kakkar and Alex Ghani, "FAPI and TOSI Overlap: 107 Percent Tax is Not Fair", Tax for the Owner-Manager, Vol. 20, No. 1, January 2020, p.5 under s. 120.4(1) – split income – (a).