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TOSI Steps

By August 12, 2019November 21st, 2022No Comments

Tax on split income

Any income from property received by a Specified Adult Individual (“SAI”) from a Related Business (“RB”) is a splitD1ma75hWkAA7N9L income and is subject to tax on split income (“TOSI”) unless excluded.

Determining whether amount is excluded from TOSI application:

  1. Is income received by the SAI from the RB?

NO  NO TOSI

YES continue;

  1. Is income received by the SAI from a RB that is an Excluded Business?

YES NO TOSI

NO continue;

  1. If the SAI is aged between 18-24 and either:
  2. Contributed to the RB a property other than:
    1. Derived from property income of the Related Business;
    2. Borrowed under a loan; or
  • Transferred from a related person?

YES Arm’s Length Capital exclusion NO TOSI

NO continue;

  1. Contributed to the RB and received a return at prescribed % (or reasonable, if capital earned in unrelated business) from that contribution?

YES SAFE HARBOR exclusion NO TOSI

NO continue;

  1. If the SAI is aged 25 and older and either:
  2. Holds 10% ownership of the RB (voting and value) and:
    1. Income of the RB is less than 90% from services;
    2. The RB is not a professional corporation;
  • The RB is not a holding corp. of a professional corporation;

YES EXCLUDED SHARES exclusion NO TOSI

NO continue;

  1. Income from the RB represents a Reasonable Return for:
    1. Work performed;
    2. Property contributed;
  • Risks assumed;
  1. All of the above compared to other workers in the Relate Business 

YES Reasonable Return exclusion NO TOSI

NO continue;

  1. Is the SAI that received income from the RB a spouse of a 65 years old retired source person?

YES NO TOSI

NO continue;

  1. Has the SAI received an income from the RB that is a capital gain resulting from sale of a property that qualifies for the life time capital gain exemption?

YES NO TOSI

NO continue;

  1. Has the individual received income from inherited property?

YES the income generally affords the same treatment as it did in the hands of the deceased. 

NO if all the answers are “NO”, except #1 (income from non RB), TOSI applies.

The next post will be a flowchart for the above steps to go with them.