What’s New with TOSI

In 2017, legislation was passed introducing new tax on split income (TOSI) rules in effect for 2018.* Understanding TOSI and the new changes is vital to protect those who receive distributions from a private corporation from audit risk. Here are the changes you need to know:

Knowledge Bureau scanned the CRA site. Here's our take:

Why the change? The federal government believed that family members receiving distributions from a private corporation provided an unfair tax advantage in three ways:

1. It allowed families to income split by distributing income to family members who are taxed at a lower marginal tax rate that would have otherwise been earned by an individual and taxed at a high marginal personal tax rate.

2. It allowed for the accumulation of a passive income portfolio owned by a private corporation.

3. It allowed for strategies that convert regular or dividend income of a private corporation into capital gains, which are taxed on only 50% of the gain.

What were the rules before 2018? Put simply, tax on split income applied to individuals under the age of 18 and the income was taxed at the highest marginal tax rate (33% at the time). Split income included:

  • Taxable dividends
  • Taxable capital gains
  • Income from partnerships or trusts

What are the changes? The federal government changed the TOSI rules in two key ways:

  • Who it applies to: TOSI was extended to apply to adults as well as minors, but only with respect to income from a “related business”.
  • What it applies to: The definition of split income was extended to include:
  •  income received from certain debt obligations
  • taxable capital gains
  • profits from the disposition of certain properties.

Our poll question this month is asking your opinion on whether or not you think the government should roll back the controversial TOSI (Tax on Split Income) to pre-2018 legislation. Cast your vote and let us know what you think in the comments section.

Additional educational resources: To get a more comprehensive education of TOSI rules, join us at one of our CE Summits stops in Winnipeg, Toronto, Calgary or Vancouver November 4-7 where Larry Frostiak will be discussing TOSI in two sessions: Owner-Manager Compensation, Retirement and Succession Planning and Corporate Tax Planning with New Passive Investment Income Rules . Enrol today and take advantage of early bird pricing until October 15th.