CRA indicates that it is prepared to ignore reasonable absences for injury, illness, or birth in applying the actively-engaged TOSI test

Regarding the requirement in s. 120.4(1) – “excluded business” – that a specified individual be actively engaged on a regular, continuous, and substantial basis in the activities of the business in either the taxation year, or any five taxation years of the specified individual, s. 120.4(1.1)(a) deems an individual to be so engaged in a taxation year if the individual works in the business at least an average of 20 hours per week during the portion of the year in which the business operates. When asked regarding the impact on this test if the employment is interrupted by injury, illness or the birth or adoption of a child, CRA stated:

[T]he period of time during which a specified individual was on leave will not, in and of itself, preclude the individual from meeting the requirements of an excluded business. For example, if a specified individual was on a medical leave beginning in March of 2022 and returned in September of 2022, the CRA would be prepared to disregard the 6 month temporary absence in determining if the individual was (or was deemed to be) actively engaged on a regular, continuous and substantial basis in the activities of the business. The CRA would be prepared to take this approach only in cases where the leave in question is reasonable and in line with leave taken in an arm’s length situation for similar reasons (e.g. when an individual is unable to work due to injury, illness, or the birth/adoption of a child), and where the specified individual can reasonably be expected and has demonstrated an intent to return to work on the expiration of the leave period.

Neal Armstrong. Summary of 21 February 2023 CPAC Roundtable Q. 12, 2022-0947201C6 under s. 120.4(1.1)(a).