Section 120.4

Table of Contents

Subsection 120.4(1) - Definitions

Arm's Length Capital

Administrative Policy

5 October 2018 APFF Roundtable Q. 13, 2018-0778661C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares returns to a spouse and older children from a Holdco in which they reinvested their Opco capital gains exemption could qualify as excluded amounts 303
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) amounts not derived from a business were excluded amounts 149

Articles

Excluded Amount

Administrative Policy

26 March 2013 External T.I. 2012-0465001E5 - kiddie tax

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Articles

Paragraph (a)

Paragraph (b)

Paragraph (d)

Paragraph (e)

Subparagraph (e)(i)

Administrative Policy

27 November 2018 CTF Roundtable, Q.9

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares investment business a business for excluded share purposes 159

2 November 2018 External T.I. 2018-0771861E5 - TOSI: Second generation income

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Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(d) amounts derived from a related business do not include capital gains from the passive investment of the dividends therefrom 255

5 October 2018 APFF Roundtable Q. 13, 2018-0778661C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares returns to a spouse and older children from a Holdco in which they reinvested their Opco capital gains exemption could qualify as excluded amounts 303
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Arm's Length Capital no exclusion for arm’s length capital contribution where contribution derived from capital gain from related business 195

5 October 2018 APFF Roundtable Q. 11, 2018-0768821C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(i) stock market investing business of child's holdco not a related business as father not involved 284

Subparagraph (e)(ii)

Administrative Policy

25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (b) no excluded share exception where interposition of family trust or holdco 121
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) keeping time logs will “ensure that businesses are able to comply with the new rules” 173
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) shares of pizzeria but not hair salon were excluded 232

Paragraph (g)

Articles

Govindadeva Bernier, Tim Scholz, "Income Sprinkling Using Private Corporations", Office of the Parliamentary Budget Officer (with thanks to “Finance Canada officials for their helpful technical discussions”), 8 March 2018

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Subparagraph (g)(i)

Administrative Policy

5 October 2018 APFF Roundtable Q. 9, 2018-0768801C6 F - Tax on Split

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Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) portfolio investment company might qualify as having a business 480

Excluded Business

Administrative Policy

26 September 2018 External T.I. 2018-0770911E5 - Revised income sprinkling rules

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) parental leave need not detract from satisfying the regular, “continuous” and substantial TOSI test 227

Articles

Excluded Shares

Administrative Policy

27 November 2018 CTF Roundtable, Q.10

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27 November 2018 CTF Roundtable, Q.9

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) “derivation” for TOSI purposes of dividends from previously earned income from a related business 273

5 October 2018 APFF Roundtable Q. 13, 2018-0778661C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Arm's Length Capital no exclusion for arm’s length capital contribution where contribution derived from capital gain from related business 195
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) amounts not derived from a business were excluded amounts 149

29 May 2018 STEP Roundtable Q. 7, 2018-0744031C6 - Excluded Shares

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29 May 2018 STEP Roundtable Q. 6, 2018-0743971C6 - Excluded Shares – Holding Company

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29 May 2018 STEP Roundtable Q. 5, 2018-0743961C6 - Tax on Split Income

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Words and Phrases
income

Articles

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 2, 2018-0765791C6 F - Tax on Split Income

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5 October 2018 APFF Roundtable Q. 9, 2018-0768801C6 F - Tax on Split

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (g) - Subparagraph (g)(i) inactive spouse could receive excluded amount dividends from Holdco if its income was from an active business of reinvesting Opco dividends 259

25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (b) no excluded share exception where interposition of family trust or holdco 121
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) where spouse works in only one of two businesses, excluded amount determination requires “separate accounting for each business and a tracing of funds” 158
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) keeping time logs will “ensure that businesses are able to comply with the new rules” 173

8 May 2018 CALU Roundtable Q. 6, 2018-0745871C6 - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c) shares of a holding company generally do not qualify as excluded shares 153

Paragraph (b)

Administrative Policy

21 August 2018 External T.I. 2018-0771811E5 - 120.4 Excluded Shares

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25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) where spouse works in only one of two businesses, excluded amount determination requires “separate accounting for each business and a tracing of funds” 158
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) keeping time logs will “ensure that businesses are able to comply with the new rules” 173
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) shares of pizzeria but not hair salon were excluded 232

Paragraph (c)

Administrative Policy

8 May 2018 CALU Roundtable Q. 6, 2018-0745871C6 - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) services/property distinction informed by rationale of the safe harbour exclusions 256

Reasonable Return

Administrative Policy

2 November 2018 External T.I. 2018-0771851E5 - TOSI: Meaning of Reasonable Return

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Paragraph (b)

Articles

Govindadeva Bernier, Tim Scholz, "Income Sprinkling Using Private Corporations", Office of the Parliamentary Budget Officer (with thanks to “Finance Canada officials for their helpful technical discussions”), 8 March 2018

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Kevyn Nightingale, "Private Company Income-Splitting Proposal Part 3: The Government Responds", Tax Topics (Wolters Kluwer), No. 2389-90, December 21, 2017, p. 1

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Finance

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Related Business

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

5 October 2018 APFF Roundtable Q. 11, 2018-0768821C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) dividends derived from stock portfolio of Holdco excluded because stock portfolio not a related business or not a business 435

Subparagraph (a)(ii)

Administrative Policy

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (e) - Subparagraph (e)(ii) deemed s. 104(21) capital gains retained their character as stock market gains 177
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(c) - Subparagraph 120.4(1.1)(c)(ii) s. 120.4(1.1)(c)(ii) exclusion where investment portfolio business of spousal trust had been carried on directly by deceased husband 322

Paragraph (c)

Articles

Subparagraph (c)(i)

Clause (c)(i)(B)

Administrative Policy

5 October 2018 APFF Roundtable Q. 10, 2018-0768811C6 F - Related business and subsection 120.4(1)

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Split Income

Administrative Policy

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

5 October 2018 APFF Roundtable Q. 12, 2018-0768831C6 F - Tax on Split Income and Partnership

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1) having non-contributing children as members of a family stock market partnership is subject to challenge under s. 103 81
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.8) having non-contributing children in a family portfolio investment partnership subject to potential challenge under ss. 74.1 and 96(1.8) 89

Paragraph (c)

Administrative Policy

6 July 2018 External T.I. 2018-0759521E5 - Tax on split income & preferred beneficiary

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(14) split income rules do not apply to preferred beneficiary income 87

10 March 2014 Internal T.I. 2013-0493971I7 F - Application of section 120.4

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1) allocation of income to partner not responsible for expenses 177
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1) income-splitting partnership terms 146

11 October 2013 APFF Roundtable, 2013-0495651C6 F - Revenu fractionné

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) streaming of split and non-split income between trust beneficiaries 94

Articles

Joseph Frankovic, "Income Splitting and Attribution", Tax Topics, Wolters Kluwer, No. 2250, April 23, 2015

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Subparagraph (c)(ii)

Clause (c)(ii)(C)

Administrative Policy

Clause (c)(ii)(D)

Administrative Policy

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 4, 2018-0765811C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(c) - Subparagraph 120.4(1.1)(c)(ii) exclusion where rental portfolio of spousal trust was a directly-conducted business of deceased husband 301

9 October 2015 APFF Roundtable Q. 2, 2015-0595521C6 F - Meaning of "actively engaged"

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Paragraph (e)

Subparagraph (e)(ii)

Administrative Policy

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(ii) related business if children manage investment business of trust whose interest income is distributed to mother 336
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(c) - Subparagraph 120.4(1.1)(c)(ii) s. 120.4(1.1)(c)(ii) exclusion where investment portfolio business of spousal trust had been carried on directly by deceased husband 322

Split Portion

Paragraph (b)

Finance

2017 CTF Finance Roundtable, Q.7

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Articles

Kevyn Nightingale, "Private Company Income Splitting: Part 2 – Observations", Tax Topics (Wolters Kluwer), No. 2371, 17 August 2017, p. 1

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Subsection 120.4(1.1)

Paragraph 120.4(1.1)(a)

Administrative Policy

26 September 2018 External T.I. 2018-0770911E5 - Revised income sprinkling rules

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business parental leave did not detract from satisfying activity level test 166

25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (b) no excluded share exception where interposition of family trust or holdco 121
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) where spouse works in only one of two businesses, excluded amount determination requires “separate accounting for each business and a tracing of funds” 158
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) shares of pizzeria but not hair salon were excluded 232

Paragraph 120.4(1.1)(b)

Paragraph 120.4(1.1)(c)

Administrative Policy

Subparagraph 120.4(1.1)(c)(ii)

Administrative Policy

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 4, 2018-0765811C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (c) - Subparagraph (c)(ii) - Clause (c)(ii)(D) no TOSI on net rental income of spousal trust on properties managed by son if excluded amounts 181

5 October 2018 APFF Financial Strategies and Financial Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (e) - Subparagraph (e)(ii) deemed s. 104(21) capital gains retained their character as stock market gains 177
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(ii) related business if children manage investment business of trust whose interest income is distributed to mother 336

Paragraph 120.4(1.1)(d)

Administrative Policy

2 November 2018 External T.I. 2018-0771861E5 - TOSI: Second generation income

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Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) dividends generated from the investment of dividends received from a related business (or gains from such investments) are not themselves derived from that business 375

Subparagraph 120.4(1.1)(d)(iii)

Subsection 120.4(3)

Articles

Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission

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Govindadeva Bernier, Tim Scholz, "Income Sprinkling Using Private Corporations", Office of the Parliamentary Budget Officer (with thanks to “Finance Canada officials for their helpful technical discussions”), 8 March 2018

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Subsection 120.4(4) - Taxable capital gain

Administrative Policy

10 June 2013 STEP Roundtable, 2013-0480261C6 - 2013 STEP Roundtable Question 1

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