Rules concerning tax on split income (“TOSI”) have existed since 1999. These rules previously prevented the allocation of certain dividends and capital gains to individuals under the age of 18 by subjecting such amounts to the highest personal tax bracket.
In 2018 the federal budget significantly expanded the existing TOSI rules, in order to further limit the ability for private corporations to “income sprinkle” or pay dividends to shareholders who are not actively involved in the business. Income caught under the TOSI rules is subject to tax at the highest marginal tax rate, eliminating any advantage gained by income splitting. The expanded rules were passed into law on June 21, 2018 and became effective January 1, 2018.
The new TOSI legislation is complex and contains many exceptions which include, exceptions for spouses of active shareholders who are over the age of 65, and exceptions for shareholders who inherited their shares from active shareholders.
Walsh King has proactively helped our clients mitigate the application of the new TOSI rules on income. If you would like to discuss how the new rules will impact your family’s tax planning, please contact one of our trusted advisors today.
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