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
A family trust (“Trust”) distributed the taxable portion of its gain on the sale of qualified small business corporation shares (of Opco) to...
| 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 | 317 |
| 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 | 153 |
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Exclusion for arm’s length borrowing even where no source-individual guarantee (p. 11)
The definition of “arm’s length capital” for adults...
Paragraph (c)
Administrative Policy
7 October 2021 APFF Roundtable Q. 17, 2021-0901071C6 - Application of section 120.4
Mr. X held all the preferred shares of Opco Inc. representing more than 50% of the voting rights. Opco paid a $10,000 capital dividend on its...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) | exclusion where business from which the dividend was derived had ceased in a prior year | 640 |
Excluded Amount
Administrative Policy
26 March 2013 External T.I. 2012-0465001E5 - kiddie tax
The minor child of the owner of a Canadian-controlled private corporation purchased the shares of the CCPC with money received in universal child...
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Failure of attribution rules to dovetail with excluded amount definition (p. 15)
- Where s. 75(2) or 56(4.1) deems an amount of taxable capital...
Paragraph (a)
Administrative Policy
15 February 2006 External T.I. 2005-0126831E5 F - 120.4(1) - définition : montant exclu
In finding that income from shares acquired by a minor child from money received as a consequence of the death of a parent was not excluded under...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(5) | phrase “substituted property” must be used to engage s. 248(5) | 94 |
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
No exclusion for transfers from grandparents or perhaps adoptive parents (p. 11)
- S. (a)(i) of “excluded amount” does not include transfers of...
Paragraph (b)
Administrative Policy
7 May 2024 CALU Roundtable Q. 10, 2024-1005811C6 - TOSI and Marriage
Spouse A, and adult children of Spouse A and B, owned 80% and 20% of the Opco common shares, respectively. Spouse A, who was living separate and...
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
No exclusions for indirect s. 55(3)(a) transfers or extraordinary discretionary dividends on existing shares ((p. 10)
- Where, following a...
Paragraph (d)
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Insufficient flow through of attributes under QSBC provisions to beneficiary of trust (p. 16)
- As the qualified small business corporation...
Paragraph (e)
Subparagraph (e)(i)
Administrative Policy
7 October 2021 APFF Roundtable Q. 17, 2021-0901071C6 - Application of section 120.4
Situation (a)
The shares (of only one class) of Investco were owned 95% by Mr. X and 5% by his spouse, Ms. Y. Investco wholly owned Opco, and also...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Arm's Length Capital - Paragraph (c) | a capital dividend from a related business was not a source of arm’s length capital | 245 |
15 June 2021 STEP Roundtable Q. 4, 2021-0883141C6 - TOSI on Dividends
Many years ago, three Canadian-resident brothers pooled their savings and incorporated TDH, whose only class of shares is owned equally by them...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares | excluded share, or excluded amount - (e)(i), exclusion would apply re dividend income from equally–owned real estate rental company | 154 |
3 December 2019 CTF Roundtable Q. 9, 2019-0824421C6 - Excluded Amount-Non-related Business exception
The (e)(i) exclusion applied where the corporation in question (which presumably is paying dividends to a specified individual who was never...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(ii) | source individual status retained after arm's length sale if continued active involvement in business | 438 |
11 June 2019 External T.I. 2019-0795291E5 F - Tax on Split Income - 120.4(1) excluded amount
Mr. A bequeathed all the common shares of Opco to his surviving spouse, Ms. B, who was actively engaged on a regular, continuous and substantial...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business | no TOSI tax applied to a dividend received from the surviving step-mother’s company | 221 |
27 November 2018 CTF Roundtable Q. 9, 2018-0779981C6 - TOSI–Excluded Amount - Non-Related Bus. Exception
Mr. and Mrs. A (both over 25) are equal shareholders of ACo, which two years previously sold the Old Business in which Mrs. A had been actively...
| 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 | 165 |
2 November 2018 External T.I. 2018-0771861E5 - TOSI: Second generation income
Mr. and Mrs. A (both over 30) respectively own 100 voting and 100 non-voting common shares of Investco which wholly-owns Opco (with a non-services...
| Locations of other summaries | Wordcount | |
|---|---|---|
| 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 | 265 |
5 October 2018 APFF Roundtable Q. 13, 2018-0778661C6 F - Tax on Split Income
A family trust (“Trust”) distributed the taxable portion of its gain on the sale of qualified small business corporation shares (of Opco) to...
| 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 | 317 |
| 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 | 201 |
5 October 2018 APFF Roundtable Q. 11, 2018-0768821C6 F - Tax on Split Income
Mr. X holds all the voting shares of Opco, a family trust (“Trust”) holds all the participating shares of Opco, and Child X (age 30 and not...
| 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 | 290 |
Subparagraph (e)(ii)
Administrative Policy
7 October 2021 APFF Roundtable Q. 18, 2021-0901091C6 - TOSI continuity rule for inherited property
The will of an individual (Mr. X), who had for many years been actively involved in the business of an Opco, provided for a portion of his Opco...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(b) - Subparagraph 120.4(1.1)(b)(ii) | a dividend on shares that were distributed by an inter vivos trust, as directed in a will 15 years previously, can be excluded by s. 120.4(1.1)(b)(ii) | 660 |
10 January 2020 External T.I. 2019-0819431E5 - TOSI
A professional corporation (PC1), whose voting shares have been held by Dr. A (a physician) and whose non-voting participating shares have been...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business | business was related business even if dividends paid after business’ discontinuance | 441 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c) | GAAR could be applied where excluded share status is achieved through shifting a professional services business | 533 |
3 December 2019 CTF Roundtable Q. 8, 2019-0824411C6 - TOSI - Excluded Business
ABC Co., which was wholly-owned by a family trust, of which Mr. and Mrs. A (both over 24) are beneficiaries, carried on a trucking business in...
6 August 2019 External T.I. 2019-0792001E5 F - Tax on split income and excluded business
Mr. X had for more than five years been actively engaged on a regular, continuous and substantial basis in the construction business of a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | paid but non-worked days do not count | 188 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(d) - Subparagraph 120.4(1.1)(d)(ii) | same-year limitation of the exclusion for income derived from the proceeds of an excluded business | 230 |
19 August 2019 External T.I. 2019-0814181E5 - TOSI - interpretation of "excluded business"
Para. (b) of the “excluded business” definition of the tax on split income (TOSI) rules includes in an excluded business of a specified...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business - Paragraph (b) | drop-down of business does not restart the 5-year count | 262 |
25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income
The spouse (Spouse B) of the shareholder of a corporation with a construction and property management business works 25 hours in the property...
| 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 | 138 |
| 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” | 189 |
| 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 | 242 |
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
Overview of 13 December 2017 changes (pp. 6-7)
Specified individuals aged 18 to 24 would be required to provide a greater labour contribution, as...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Reasonable Return - Paragraph (b) | 197 | |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(3) | 273 |
Subparagraph (g)(i)
Administrative Policy
5 October 2018 APFF Roundtable Q. 9, 2018-0768801C6 F - Tax on Split
2018 STEP Roundtable Q.7 indicated that the shares of a holding company (or of a company generating no business income) cannot qualify as excluded...
| Locations of other summaries | Wordcount | |
|---|---|---|
| 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 | 540 |
Subparagraph (g)(ii)
Administrative Policy
7 August 2019 External T.I. 2019-0814161E5 - Application of Reasonable Return - TOSI
An individual (Spouse B) who, quite unlike Spouse A, was not involved in the business of Opco, received distributions of s. 104(19) dividends from...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Reasonable Return | shares subscribed for out of a joint bank account should not be treated as having been funded by a passive spouse in applying the reasonable return TOSI exception | 250 |
Excluded Business
Administrative Policy
15 June 2022 STEP Roundtable Q. 8, 2022-0928251C6 - TOSI and multiple businesses
A husband and wife owning a number of corporations, each of which has its own business and full-time staff, work on a full-time basis for the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | splitting long hours between many companies may oust s. 120.4(1.1)(a) | 103 |
26 November 2020 STEP Roundtable Q. 10, 2020-0837641C6 - TOSI - Excluded Business
After a husband and wife’s corporation (in whose business they had worked full time for 5 years) has sold its business and reinvested the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income | investing carried on with the proceeds of sale of a business in which the spousal shareholders had been engaged full time generally would generate TOSI on resulting dividends | 168 |
26 November 2020 STEP Roundtable Q. 9, 2020-0837631C6 - TOSI - Excluded Business
A husband and wife own shares of various corporations, each with its own business, and both work on a full-time basis (i.e., over 20 hours...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | hours worked for multiple corporations cannot be aggregated for purposes of the 20-hour test | 203 |
7 June 2019 STEP Roundtable Q. 4, 2019-0799911C6 - TOSI & Meaning of Excluded Business
The spouse of a professional works over 20 hours per week as a part-time receptionist in the professional practice of his corporation (XCo). She...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | spouse on achieving 20-hour threshold could receive large dividends as excluded amounts | 119 |
7 June 2019 STEP Roundtable Q. 3, 2019-0799901C6 - TOSI and Hours Worked
A business is carried on through a corporation owned by husband and wife, who each contribute 5 hours per week of time to the business. Is the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | falling below 20 hours not presumptive | 82 |
3 December 2018 CPA Canada Roundtable, 2018-0773811C6 - Tax on Split Income (TOSI)
Example V: Excluded business based on prior 5 years (pp. 33-34)
Farmco’s shareholders are Father, Mother and a Family Trust for Child 1 and...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(ii) | dividend paid to unrelated active shareholder | 84 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) | when property is ancillary | 91 |
26 September 2018 External T.I. 2018-0770911E5 - Revised income sprinkling rules
Regarding the 20-hour rule in s. 120.4(1.1)(a), the Explanatory Notes state:
An average work commitment of less than 20 hours per week could...
| 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 | 256 |
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Example 4 (under 25 and over 20 hours)
Dividends from Farmco paid to a children’s trust and distributed to an age-20 child who works 20 hours...
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
5 taxation years of the specified individual may be what is referenced (p. 13)
- It is unclear whether “any five prior taxation years” refers...
Paragraph (a)
Administrative Policy
11 October 2019 APFF Roundtable Q. 18, 2019-0812771C6 F - TOSI Actively Engaged
Individual B is a source individual in respect of Individual A. Individual A holds only 5% of the shares of Aco but is “actively engaged on a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Reasonable Return | potential application of reasonable return exception where on mat leave or disability | 211 |
Paragraph (b)
Administrative Policy
19 August 2019 External T.I. 2019-0814181E5 - TOSI - interpretation of "excluded business"
A source individual (“Mr. A”) transferred his catering business to a newly incorporated corporation (“Opco”) in consideration for Opco...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | 5-year excluded business exception can take into account involvement while business held by predecessor | 154 |
27 February 2019 External T.I. 2018-0783741E5 - TOSI and the meaning of "Excluded Business"
From 2001 to 2006 inclusive, Ms. B was employed 40 hours per week in the active business of Opco (wholly owned by Mr. A), then ceased working. In...
Excluded Shares
Administrative Policy
15 June 2021 STEP Roundtable Q. 4, 2021-0883141C6 - TOSI on Dividends
Many years ago, three Canadian-resident brothers pooled their savings and incorporated a corporation, whose only class of shares is owned equally...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) | a passive real estate company would not generate TOSI to its equal significant shareholders | 219 |
7 November 2018 External T.I. 2018-0777361E5 - TOSI and dividend income, including from a trust
In 2018, the estate of the Deceased (the “Estate”) acquired all the voting preferred shares of “Investco” (a taxable Canadian corporation...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(b) | general discussion of s. 120.4(1.1)(b) | 340 |
27 November 2018 CTF Roundtable Q. 10, 2018-0780081C6 - TOSI – Excluded Shares & Related Business
29 May 2018 STEP Roundtable Q.7, 2018-0744031C6 indicated that the shares of a corporation that did not generate business income (e.g., a...
27 November 2018 CTF Roundtable Q. 9, 2018-0779981C6 - TOSI–Excluded Amount - Non-Related Bus. Exception
Mr. and Mrs. A (both over 25) are equal shareholders of ACo, which two years previously sold the Old Business in which Mrs. A had been actively...
| 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 | 285 |
5 October 2018 APFF Roundtable Q. 13, 2018-0778661C6 F - Tax on Split Income
A family trust (“Trust”) distributed the taxable portion of its gain on the sale of qualified small business corporation shares (of Opco) to...
| 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 | 201 |
| 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 | 153 |
29 May 2018 STEP Roundtable Q. 7, 2018-0744031C6 - Excluded Shares
Assume that a corporation has no business income because it derives income from property (possibly rental income from real property where the...
29 May 2018 STEP Roundtable Q. 6, 2018-0743971C6 - Excluded Shares – Holding Company
In general terms, is it possible for shares of a holding company to qualify as "excluded shares"?
CRA indicated that the definition of excluded...
29 May 2018 STEP Roundtable Q. 5, 2018-0743961C6 - Tax on Split Income
In the definition of excluded shares, subpara. (a)(i) refers to 90% of the corporation’s "business income" whereas para. (c) uses "all or...
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Example 3B (inactive spouse holding excluded shares)
Dividend paid by Opco (a components business) only on the class of voting discretionary...
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Para. (c) exclusion for income form a related business taints a holding company receiving dividends from a wholly-owned Opco with an active...
Paragraph (a)
Subparagraph (a)(i)
Administrative Policy
2021 Alberta CPA Roundtable under “Tax on Split Income – Services Restriction to Excluded Shares”
The CRA website provides examples of the calculation of the 90% services exclusion in s. (a)(i) of the "excluded share" definition, which...
13 March 2020 External T.I. 2019-0833181E5 - TOSI - Excluded Shares
Is the income of a corporation that produces and “sells” training videos as digital downloads from its website to be considered as income from...
2 December 2019 CTF Conference - Paul Wilson in "New Taxation Rules for Private Corporations: So far, so reasonable?" under “Scenario 2”
Paul Wilson (Director, Medium Business Audit Division, Small and Medium Enterprises Directorate) provided comments noted below on the following...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business | low threshold for determining whether there is a business for TOSI purposes | 303 |
Tax on split income – Excluded shares (CRA webpage) 10 July 2019
Example 3 (plumbing business with changing mix)
A corporation generates 95% and 5% of its revenues in 2017 from repair and maintenance services...
3 December 2018 CPA Canada Roundtable, 2018-0773811C6 - Tax on Split Income (TOSI)
Gross income from services v. goods
Where goods are provided in combination with a service and the goods are not incidental (e.g., auto repairs...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business - Paragraph (a) - Subparagraph (a)(ii) | dividend paid to unrelated active shareholder | 84 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | excluded based on prior 5 years | 137 |
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 2, 2018-0765791C6 F - Tax on Split Income
2018 STEP Roundtable Q.7 indicated that the shares of a corporation that did not generate business income (e.g., a corporation that generated...
5 October 2018 APFF Roundtable Q. 9, 2018-0768801C6 F - Tax on Split
2018 STEP Roundtable Q.6 and Q.7 confirmed that the shares of a holding company (or of a company generating no business income) cannot qualify as...
| 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 | 280 |
25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income
A corporation owned 50-50 by two spouses (Family 1) operates a hair salon which derives more than 90% of its income from the provision of...
| 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 | 138 |
| 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” | 167 |
| 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” | 189 |
8 May 2018 CALU Roundtable Q. 6, 2018-0745871C6 - Tax on Split Income
Mr. X, age 35 year, owns 15% of the shares of Transportco (representing 15% of the votes and value). Transportco earns all or substantially all of...
| 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 | 175 |
Paragraph (b)
Administrative Policy
23 August 2021 Internal T.I. 2020-0856081I7 - Interaction of subsection 82(3) and section 120.4
The s. 82(3) election allows a taxpayer (the higher income earner in a couple) to elect to have a taxable dividend from any taxable Canadian...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 82 - Subsection 82(3) | s. 82(3) election can convert a TOSI dividend to a dividend on an excluded share | 489 |
21 August 2018 External T.I. 2018-0771811E5 - 120.4 Excluded Shares
Where a shareholder has non-voting common shares with a fair market value (“FMV”) equal to 20% of the total FMV of the corporation and...
25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income
In confirming that the excluded share exception is available where dividends are paid to a spouse through a holding company (of which the spouse...
| 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” | 167 |
| 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” | 189 |
| 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 | 242 |
Paragraph (c)
Administrative Policy
5 August 2022 External T.I. 2021-0877051E5 F - TOSI and excluded amount
Each of three resident siblings were the respective beneficiaries, along with their spouses and children, of three trusts each holding an equal...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business | 2nd generation income not derived from business/ interest received from company employing sibling a related business/ ownership test in (c) may be satisfied through a family trust | 976 |
8 April 2020 External T.I. 2020-0839581E5 - TOSI - "Excluded Shares"
2019-0819431E5 concerned a medical practice corporation (PC1) (which had reinvested its earnings in a significant investment portfolio) whose...
10 January 2020 External T.I. 2019-0819431E5 - TOSI
A professional corporation (PC1), whose voting shares have been held by Dr. A (a physician) and whose non-voting participating shares have been...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Related Business | business was related business even if dividends paid after business’ discontinuance | 441 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | "derived directly or indirectly" to be construed broadly | 220 |
9 August 2019 External T.I. 2019-0813021E5 - TOSI and excluded shares
Partnership AB, which carries on an active non-services business, is held by two corporate partners (Partnerco A and Partnerco B). The shares of...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f) | partner carries on business of partnership | 108 |
12 June 2019 External T.I. 2019-0792011E5 F - TOSI definition excluded shares
Investco held all the shares of Opco, which was the only related business in respect of the specified individual. In Year X and prior years, Opco...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(d) | income derived from related business included income from reinvesting sales proceeds from sale thereof in preceding year | 119 |
24 May 2019 External T.I. 2019-0802331E5 - TOSI and excluded shares
Are capital gains “income” under para. (c) “excluded shares,” and are allowable capital losses incurred the year deducted under para....
8 May 2018 CALU Roundtable Q. 6, 2018-0745871C6 - Tax on Split Income
Can shares of a holding corporation qualify as “excluded shares”? CRA responded:
The definition of excluded shares should generally not...
| 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 | 268 |
Reasonable Return
Administrative Policy
15 June 2021 STEP Roundtable Q. 3, 2021-0883151C6 - Reasonable Return on Note
Where a family trust distributes its income to a beneficiary by issuing an interest bearing promissory note, if the beneficiary is not a minor and...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (d) - Subparagraph (d)(i) | interest-bearing promissory note distributed to passive beneficiary regarding a related business would be includible under para. (d) subject to reasonable return exclusion | 267 |
2 December 2019 CTF Conference - Paul Wilson in "New Taxation Rules for Private Corporations: So far, so reasonable?" under “Reasonable return”
Paul Wilson (Director, Medium Business Audit Division, Small and Medium Enterprises Directorate) elaborated on the statement in 2018-0771851E5...
11 October 2019 APFF Roundtable Q. 18, 2019-0812771C6 F - TOSI Actively Engaged
A specified individual, who holds only 5% of the shares of Aco has however been “actively engaged on a regular, continuous and substantial...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business - Paragraph (a) | loss of excluded business exception when specified individual went on extended mat leave or disability | 324 |
7 August 2019 External T.I. 2019-0814161E5 - Application of Reasonable Return - TOSI
Spouses A and B are among the beneficiaries of a discretionary family trust holding Holdco which, in turn, holds Opco in whose business Spouse B...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (g) - Subparagraph (g)(ii) | broad construction of reasonable return exception would violate TOSI policy | 229 |
2 November 2018 External T.I. 2018-0771851E5 - TOSI: Meaning of Reasonable Return
Mr. and Mrs. X (both over 25) incorporate XCo, subscribe a nominal amount for non-voting and voting common shares, respectively and lend the...
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Deference to taxpayer’s good-faith efforts to determine Reasonable Return
In determining whether the payment is a Reasonable Return [defined as...
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
Preferred scenario assumes that all spouses aged over 24 are earning a reasonable return (pp. 1-2)
The Parliamentary Budget Officer (PBO) …...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(3) | 273 | |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (g) | 558 |
Kevyn Nightingale, "Private Company Income-Splitting Proposal Part 3: The Government Responds", Tax Topics (Wolters Kluwer), No. 2389-90, December 21, 2017, p. 1
Intractability of linking business income/gains to individual contribution (p. 3)
Business income and gains are inherently different from...
Finance
Preferred scenario assumes that all spouses aged over 24 are earning a reasonable return (pp. 1-2)
The Parliamentary Budget Officer (PBO) …...
Related Business
Administrative Policy
5 August 2022 External T.I. 2021-0877051E5 F - TOSI and excluded amount
Each of three resident siblings (C-1, C-2 and C-3, all over 25) held an equal number of non-voting preferred shares of Investco, their father...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c) | test not satisfied due to interest from company employing a sibling | 440 |
10 January 2020 External T.I. 2019-0819431E5 - TOSI
A professional corporation (PC1), whose voting shares have been held by Dr. A (a physician) and whose non-voting participating shares have been...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c) | GAAR could be applied where excluded share status is achieved through shifting a professional services business | 533 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | "derived directly or indirectly" to be construed broadly | 220 |
2 December 2019 CTF Conference - Paul Wilson in "New Taxation Rules for Private Corporations: So far, so reasonable?" under “Scenario 2”
Paul Wilson (Director, Medium Business Audit Division, Small and Medium Enterprises Directorate) provided comments noted below on the following...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) | quaere whether low-service hotel business is a services business | 392 |
11 June 2019 External T.I. 2019-0795291E5 F - Tax on Split Income - 120.4(1) excluded amount
In 2018, following his marriage to Ms. B, who was not the mother of his 33-year old son (Son A), Mr. A died. Mr. A bequeathed all of the common...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) | dividend received from widowed step-mother's company was not re a related business | 134 |
Paragraph (a)
Subparagraph (a)(i)
Administrative Policy
5 October 2018 APFF Roundtable Q. 11, 2018-0768821C6 F - Tax on Split Income
All the voting shares of Opco are held by Mr. X and all its participating shares are held by a family trust (“Trust”). In the prior year,...
| 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 | 449 |
Subparagraph (a)(ii)
Administrative Policy
3 December 2019 CTF Roundtable Q. 9, 2019-0824421C6 - Excluded Amount-Non-related Business exception
A specified individual (the “Individual”) receives a dividend paid out of corporate income that is derived, directly or indirectly, from a...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(i) | a transitional services agreement with an arm’s length purchaser can engage the TOSI rules | 86 |
3 December 2018 CPA Canada Roundtable, 2018-0773811C6 - Tax on Split Income (TOSI)
Example III: Income not from a related business (pp. 23-24)
B, aged 20, was issued 20% of the shares of Opco (a CCPC) as part of his compensation...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | excluded based on prior 5 years | 137 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i) | when property is ancillary | 91 |
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income
Jean on his decease left proceeds of an insurance policy and non-registered investments (which had been acquired by him out of accumulated...
| 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 | 185 |
| 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 | 342 |
Paragraph (c)
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Valuation difficulties where shares of Opco are held through a trust (p. 13)
- Para. (c) of “related business” looks at whether a specified...
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)
The definition of “related business” – (c)(i)(B) references a business of a corporation where a source individual owns property “that...
Split Income
Administrative Policy
7 October 2021 APFF Roundtable Q. 2, 2021-0900901C6 F - TOSI and scenarios to recuperate the AMT
An operating company (Zco) employs the spouse (Ms. Z) of its sole shareholder (Mr. Z). As the salary amount ($100,000) might be unreasonable in...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (g) - Subparagraph (g)(ii) | only amount in excess of reasonable return is not an excluded amount | 278 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (d) | TOSI rules inapplicable to loans to an individual | 220 |
26 November 2020 STEP Roundtable Q. 10, 2020-0837641C6 - TOSI - Excluded Business
A husband and wife both worked in the business of a corporation for at least 20 hours a week for 5 years. Subsequently, the business was sold,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | questioned availability of excluded business exception where investing activity | 163 |
26 November 2020 STEP Roundtable Q. 7, 2020-0837611C6 - TOSI and Rental Property
Related individuals hold a rental property in co-tenancy. Is the rental income, or any taxable capital gains from a disposition, split income? ...
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Example 5B (salary excluded)
Salary paid by Opco to a child (over 24) working 600 hours each summer in Opco business is not split income (s. 120.4...
Paragraph (a)
Subparagraph (a)(i)
Administrative Policy
7 June 2019 STEP Roundtable Q. 14, 2019-0798511C6 - TOSI and PBE
The Summary portion of 2018-0759521E5 indicated that if a s. 104(19) designation is made respecting a preferred beneficiary income amount...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19) | designation can be avoided by including dividend in "other income" box | 110 |
7 June 2019 STEP Roundtable Q. 13, 2019-0798501C6 - TOSI and PBE
Para. (c) of the “split income” definition refers to amounts included in a beneficiary’s income under s. 104(13), but not under s. 104(14)...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (c) | exclusion inapplicable to dividend income flowed through to a preferred beneficiary | 168 |
5 October 2018 APFF Roundtable Q. 12, 2018-0768831C6 F - Tax on Split Income and Partnership
The five partners of a family partnership that generates and distributes passive income from stock market investments are Mr. and Mrs. X and their...
| 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 | 85 |
| 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) | 93 |
Articles
Tim Barrett, Kevin Duxbury, "Corporate Integration: Outbound Structuring in the United States After Tax Reform", 2018 Conference Report (Canadian Tax Foundation), 18:1-76
Double-taxation of FAPI where TOSI rules apply (p. 18:31)
[T]he TOSI rules do not interact well with FAPI. On the one hand, FAPI included in a...
Stan Shadrin, Manu Kakkar, 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
Example of dual (s. 95(2)(b)) FAPI and TOSI
Mr. A and Ms. B own 50% each of the shares of Passive Foreignco and of the shares (having a nominal...
Paragraph (c)
Administrative Policy
7 June 2019 STEP Roundtable Q. 13, 2019-0798501C6 - TOSI and PBE
Is an amount, included in a beneficiary’s income under a preferred beneficiary election, split income under para. (c) of the “split income”...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (a) - Subparagraph (a)(i) | no exclusion for dividend income flowed out to preferred beneficiary | 108 |
6 July 2018 External T.I. 2018-0759521E5 - Tax on split income & preferred beneficiary
A trust that is a limited partner of a partnership (“LP”) providing back office support to a general partnership of accounting professionals...
| 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 | 89 |
10 March 2014 Internal T.I. 2013-0493971I7 F - Application of section 120.4
X "split" his professional income with a limited liability partnership (SENCRL) of which one of the partners was a trust for the benefit of...
| 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 | 185 |
| Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1) | income-splitting partnership terms | 158 |
11 October 2013 APFF Roundtable, 2013-0495651C6 F - Revenu fractionné
A discretionary family trust with Father, Mother and a 15-year old Child as beneficiaries, holds a building with two premises – the first leased...
| 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 | 98 |
20 May 2002 External T.I. 2002-0117885 F - Lien de dépendance et application de 120.4
In Situation 1, three trusts (Trusts X, Y and Z, of which each had as its two discretionary beneficiaries, three individuals and their respective...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(a) | trustee is related to individual if its trustee is so related | 99 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | s. 104(1) indicates that related party status of trust is tested through its trustee | 97 |
Articles
Joseph Frankovic, "Income Splitting and Attribution", Tax Topics, Wolters Kluwer, No. 2250, April 23, 2015
[T]he rules were introduced in 2000 in response to certain tax planning scenarios that circumvented the income attribution rules and were...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 56 - Subsection 56(4.1) | 95 | |
| Tax Topics - Income Tax Act - Section 74.3 - Subsection 74.3(1) | 227 |
Subparagraph (c)(ii)
Clause (c)(ii)(C)
Administrative Policy
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Example 1 (trust distribution to inactive under-25 child)
Opco dividend distributed by discretionary family trust to age-23 child who never worked...
28 March 2012 External T.I. 2011-0422531E5 F - Revenu fractionné
How is "split income" determined where, in a particular taxation year, a portion of the amount included in the income of a beneficiary of a trust...
Clause (c)(ii)(D)
Administrative Policy
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 4, 2018-0765811C6 F - Tax on Split Income
A spousal trust for Jocelyne (“Trust”) holds five commercial rental properties (generating $250,000 in annual rents, which had been managed by...
| 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 | 316 |
9 October 2015 APFF Roundtable Q. 2, 2015-0595521C6 F - Meaning of "actively engaged"
The reference in (D) of the "split income" definition to "actively engaged on a regular basis" can reasonably be considered to be partly...
Paragraph (d)
Administrative Policy
7 October 2021 APFF Roundtable Q. 2, 2021-0900901C6 F - TOSI and scenarios to recuperate the AMT
A family trust allocates and distributes to Child Y (the 15 years old child of Mr. Y and Ms. Y) $400,000 of the capital gain realized by it on the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (g) - Subparagraph (g)(ii) | only amount in excess of reasonable return is not an excluded amount | 278 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income | TOSI inapplicable to payment of excessive salary by one spouse’s company to the other spouse | 163 |
Subparagraph (d)(i)
Administrative Policy
15 June 2021 STEP Roundtable Q. 3, 2021-0883151C6 - Reasonable Return on Note
Where a family trust distributes its income to an adult beneficiary with no involvement in a related business owned directly or indirectly by the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Reasonable Return | the reasonable return TOSI exclusion can apply to interest-bearing promissory notes issued in satisfaction of family trust distributions | 297 |
11 October 2019 APFF Roundtable Q. 15, 2019-0812741C6 F - TOSI and interest income earned by a trust
S. (d)(i) of the s. 120.4(1) “split income” definition excludes an amount in respect of a debt obligation of a mutual fund corporation or...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(5) - Paragraph 108(5)(a) | source character of trust income maintained in the absence of s. 108(5)(a) appplication | 72 |
Paragraph (e)
Articles
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
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...
| Locations of other summaries | Wordcount | |
|---|---|---|
| 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 | 138 |
Subparagraph (e)(ii)
Administrative Policy
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income
Jean on his decease left proceeds of an insurance policy and non-registered investments (which had been acquired by him out of accumulated...
| 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 | 447 |
| 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 | 342 |
Paragraph (g)
Subparagraph (g)(ii)
Administrative Policy
7 October 2021 APFF Roundtable Q. 2, 2021-0900901C6 F - TOSI and scenarios to recuperate the AMT
In what was intended to be a strategy for the recovery of alternative minimum tax, Mr. X lent $100,000 to his spouse, Ms. X (also aged 30), at the...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (d) | TOSI rules inapplicable to loans to an individual | 220 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income | TOSI inapplicable to payment of excessive salary by one spouse’s company to the other spouse | 163 |
Split Portion
Paragraph (b)
Finance
2017 CTF Finance Roundtable, Q.7
If, for example, mother provides start-up capital for her son’s company, Finance accepts that it would be reasonable for her to receive a high...
Articles
Kevyn Nightingale, "Private Company Income Splitting: Part 2 – Observations", Tax Topics (Wolters Kluwer), No. 2371, 17 August 2017, p. 1
Split income if outputs exceed inputs (p. 2)
The proposals imply that outputs are equal to inputs. …
[A]ssume that in a successful family...
Subsection 120.4(1.1)
Paragraph 120.4(1.1)(a)
Administrative Policy
21 February 2023 CPAC Roundtable Q. 12, 2022-0947201C6 - TOSI - Excluded Business
Regarding the requirement in s. 120.4(1) – “excluded business” – that a specified individual be actively engaged on a regular, continuous,...
15 June 2022 STEP Roundtable Q. 8, 2022-0928251C6 - TOSI and multiple businesses
A resident husband and wife owning a number of corporations, each of which has its own business and full-time staff, work on a full-time basis for...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | individual’s contributions to a business are considered substantial if they are integral to its success | 205 |
26 November 2020 STEP Roundtable Q. 9, 2020-0837631C6 - TOSI - Excluded Business
A husband and wife collectively work full-time for various of their companies but work no more than an average of 4 hours per week in the business...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | a specified individual splitting full-time work amongst multiple corporations might meet the excluded business activity test on less than 4 hours per week per corporation | 255 |
6 August 2019 External T.I. 2019-0792001E5 F - Tax on split income and excluded business
If an employee normally works 7 hours per day but in a particular week she has a holiday day (e.g., a statutory holiday) for which she is paid,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | no excluded amount where excluded business had ceased in prior year | 284 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(d) - Subparagraph 120.4(1.1)(d)(ii) | same-year limitation of the exclusion for income derived from the proceeds of an excluded business | 230 |
7 June 2019 STEP Roundtable Q. 4, 2019-0799911C6 - TOSI & Meaning of Excluded Business
The spouse (the “Spouse”) of a professional (the “Individual”) owns non-voting preferred shares of his professional corporation...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | an excluded amount can exceed arm’s length remuneration for the services rendered | 93 |
7 June 2019 STEP Roundtable Q. 3, 2019-0799901C6 - TOSI and Hours Worked
A business is carried on through a corporation owned by husband and wife, who each contribute 5 hours per week of time to the business. This did...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Business | husband and wife each contributing 5 hours per week to business could have an excluded business | 236 |
26 September 2018 External T.I. 2018-0770911E5 - Revised income sprinkling rules
Would the correspondent’s spouse, who normally works, on average, more than 20 hours per week in the business of the correspondent’s...
| 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 | 190 |
25 May 2018 External T.I. 2018-0761601E5 - Correspondence with XXXXXXXXXX re Tax on Split Income
How must a business owner show that a spouse or child worked at least 20 hours in the business in the past five years if no formal records were...
| 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 | 138 |
| 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” | 167 |
| 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 | 242 |
Paragraph 120.4(1.1)(b)
Administrative Policy
7 June 2019 STEP Roundtable Q. 6, 2019-0799941C6 - TOSI tracing of attributes
Mr. A (who had a passive role in Opco’s business) died one year before Mrs. A (who had been actively involved for more than five years), and...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(b) - Subparagraph 120.4(1.1)(b)(ii) | successive legatees can rely on the same activity-level of the original testator under s. 120.4(1.1)(b)(ii) | 231 |
7 November 2018 External T.I. 2018-0777361E5 - TOSI and dividend income, including from a trust
CRA found that where an estate received a deemed dividend on the redemption of preferred shares of a corporation carrying on an investment...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares | an estate is a blocker for accessing the TOSI excluded share exemption | 369 |
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Flow-through of attributes on 3rd generation transfers, inheritance from active and inactive parents or as a result of single property...
Subparagraph 120.4(1.1)(b)(ii)
Administrative Policy
7 October 2021 APFF Roundtable Q. 18, 2021-0901091C6 - TOSI continuity rule for inherited property
A discretionary family trust (the "Trust") held all the Class C non-voting common shares of Opco having an FMV of $1,500,000, and Mr. X held all...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | s. 120.4(1.1)(b)(ii) can apply to shares distributed by inter vivos trust but as directed in will, so that (e)(ii) exclusion can apply | 286 |
3 December 2019 CTF Roundtable Q. 7, 2019-0824401C6 - TOSI and Inherited Property
Mr. X owns 100,000 voting preference shares of a corporation (“Investco”), whose non-voting common shares had been acquired on an estate...
7 June 2019 STEP Roundtable Q. 6, 2019-0799941C6 - TOSI tracing of attributes
Mrs. A has been actively engaged in the (services) business of Opco for at least five years, whereas Mr. A, the other shareholder, had not been so...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(b) | a subsequent bequest of Opco shares from the active mother converts previous bequest of shares from the inactive father into good shares for TOSI purposes | 205 |
Paragraph 120.4(1.1)(c)
Administrative Policy
Guidance on the application of the split income rules for adults 15 December 2017 CRA Webpage
Example 12 (spouse over 65)
Spouse A and B, aged 65 and 60, own 95% and 5% of the shares of Investco, whose active business was actively managed...
Subparagraph 120.4(1.1)(c)(ii)
Administrative Policy
7 June 2019 STEP Roundtable Q. 5, 2019-0799961C6 - TOSI and Spouse Age 65+
Will the s. 120.4(1.1)(c) exclusion apply where the deceased spouse qualified under the “excluded shares” exception based on direct ownership...
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 4, 2018-0765811C6 F - Tax on Split Income
A spousal trust for Jocelyne (“Trust”) holds five commercial rental properties (generating $250,000 in annual rents, which had been managed by...
| 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 | 193 |
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 3, 2018-0765801C6 F - Tax on Split Income
Jean on his decease left proceeds of an insurance policy and non-registered investments (which had been acquired by him out of accumulated...
| 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 | 185 |
| 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 | 447 |
Paragraph 120.4(1.1)(d)
Administrative Policy
12 June 2019 External T.I. 2019-0792011E5 F - TOSI definition excluded shares
In Year X3, Investco sells all the shares of Opco, which was the only related business respecting the specified individual (Investco’s...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c) | two years were required to pass before proceeds from the sale of a related business could generate excluded share income for TOSI purposes | 280 |
2 November 2018 External T.I. 2018-0771861E5 - TOSI: Second generation income
Mr. and Mrs. A (both over 30) respectively own 100 voting and 100 non-voting common shares of Investco which wholly-owns Opco (with a non-services...
| 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 | 391 |
Subparagraph 120.4(1.1)(d)(ii)
Administrative Policy
6 August 2019 External T.I. 2019-0792001E5 F - Tax on split income and excluded business
CRA acknowledged that the “derived directly or indirectly” phrase in s. (e)(ii) of the definition of “excluded amount” was quite broad,...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (e) - Subparagraph (e)(ii) | no excluded amount where excluded business had ceased in prior year | 284 |
| Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(a) | paid but non-worked days do not count | 188 |
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Broad scope including potential iterative derivation (pp. 11-12)
Would the following amounts be considered as derived directly or indirectly from...
Subsection 120.4(3)
Administrative Policy
26 November 2020 STEP Roundtable Q. 8, 2020-0837621C6 - TOSI and Donations
An individual has a large taxable capital gain that is split income. Can a donation of the sales proceeds generate a credit that reduces the tax...
Articles
Joint Committee, "Legislative Proposals to Address Income Sprinkling Released December 13, 2017", 8 March 2018 Joint Committee Submission
Failure of attribution rules to generate FTCs (p. 15)
Attributed income will not be entitled to foreign tax credits under subsection 120.4(3)...
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
95% of additional federal tax to be collected from families with taxable income over $150,000
The Parliamentary Budget Officer (PBO) … computed...
Subsection 120.4(4) - Taxable capital gain
Administrative Policy
10 June 2013 STEP Roundtable, 2013-0480261C6 - 2013 STEP Roundtable Question 1
Crystallization transaction
A child of parent seeks to crystallize an accrued gain on shares of Opco, which is controlled by parent, by...
22 October 2012 External T.I. 2012-0432241E5 F - Impôt des enfants mineurs - gain en capital
A minor child holding shares of a corporation equally with the child’s parent and who wishes to "crystallize" the capital gains deduction...
Subsection 120.4(5)
Cases
Brent Carlson Family Trust v. Canada (National Revenue), 2021 FC 506
In implementing a plan to maximize the utilization by family members of the capital gains exemption (“CGE”) on the sale to an arm’s length...
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 85 - Subsection 85(7.1) | CRA had been confused by the rectification jurisprudence in rejecting an amended s. 85(1) election | 623 |
See Also
Ménard v. Agence du revenu du Québec, 2021 QCCQ 3891
In 2012, a discretionary family trust engaged in a capital gains crystallization transaction in which it disposed of shares, having a modest ACB,...