TOSI is a set of rules that applies the highest personal marginal tax rate to certain income received by family members from a private corporation, effectively eliminating income splitting where specific exemptions are not met.

Introduced in 2018, TOSI applies when a related individual, typically a family member who does not meet an active involvement or capital contribution test, receives dividends, business income, or capital gains from a private corporation where a related party is engaged in the business. The income is taxed at the top marginal rate in the recipient’s province, removing the benefit of shifting income to a lower-bracket family member.

Exemptions exist for adults who are actively involved in the business on a regular and continuous basis, as well as for individuals who have made qualifying capital contributions. The tests are specific and subject to CRA review. Income splitting structures established before 2018 may no longer achieve their original objective and should be reassessed before further distributions are made.

TOSI changed the rules for family income splitting in 2018. Structures not reviewed since may no longer be effective. See how Wefinx approaches tax planning.

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