TOSI (tax on split income) rules aren’t easy to comprehend. A typical TOSI case would be when a business-owner splits income by paying corporation dividends to family-member shareholders. There are instances in which this tax can be legally avoided, such as when under 10 percent of a corporation’s income is derived from a related business. Important CRA interpretations of the law relate to holding companies and operating companies. Also relevant is the fact that TOSI usually doesn’t apply to property income (as opposed to a business income). Ultimately, a tax advisor should be thoroughly familiar with CRA technical interpretations regarding TOSI, in order to best serve one’s clients.
“The Income Tax Act defines a “related business,” which is generally a business in which a Canadian-resident family member is actively involved or has a significant capital interest at any time during the year.”