On December 13, 2017, the Department of Finance released further clarification on the previously proposed tax on split income (“TOSI”) or income sprinkling rules. The government has simplified the rules, excluding family members who make “meaningful contributions” to the business.
Additionally, family members excluded from the new rules include:
- A business owner’s spouse, provided the owner meaningfully contributed to the business and is aged 65 or over.
- Adults aged over 17 who have made a substantial labor contribution to the business [which generally means at least 20 hours per week during the year or during any five previous years].
- Adults age 25 or older who own 10% or more of the corporation, the corporation earns less than 90% of its income from the provisions of services and is not a “Professional Corporation”.
Another exclusion is for individuals who are not in the highest marginal tax rate who receive or realize capital gains from the disposition of qualified small business corporation shares. Meaning, it no longer appears necessary to implement a tax strategy involving crystallizing capital gains on QSBC shares before the end of 2017 for family members caught under these new TOSI rules.
A more detailed memo concerning these rules will be issued shortly. For more information on these proposals and how they may impact you, please contact your DMCL advisor.