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1. 1
Tax on Split
IncomeHow do the New Rules Impact
You?
LIVE WEBINAR

2. 2
INTRODUCING YOUR WEBINAR PANELISTS
Jim McConnery
CPA, CA, TEP
Welch LLP Partner
Don Scott
FCPA, FCA
Welch LLP Tax Partner,
Director of Tax Services
Gregory Sanders
LLB, CPA
Perley-Robertson, Hill &
McDougall
Head of Tax Group

3. 3
GROUND RULES
• Attendees are in listen-only mode
• This webinar is being recorded for
future on-demand playback
• Your participation represents
acknowledgement that we are
recording
• Tweet questions & comments to
@WelchLLP

4. 4
• Old TOSI regime
• Permitted income splitting
• New Tax on Split Income (“TOSI”) Regime is complex:
• New rules / definitions
• Myriad of scenarios
• Uncertainty via CRA’s interpretation
• Webinar is mostly non-technical:
• Focus on business owners / common corporate
structures
• Dividends / gains realized on the sale of private
company shares
• Planning opportunities under the new regime
• Examples of when TOSI does and does not apply
AGENDA

5. 5
OLD TOSI
• Old TOSI was limited to minors
• Bright line test – no uncertainty
• Precluded income splitting with minors
• Finance asserts that private company income
splitting opportunity is inappropriate advantage
• Used a typical employee as a benchmark
• This is not a reasonable or fair comparison

6. 6
INCOME SPLITTING
OpCo
Trust
• David 20
• Hannah 25
Candace
• OpCo taxed at small business rate of 13.5%
• Candace, the key shareholder and manager of the business
receives $150,000 of dividend income for her personal needs
• In addition to her personal needs she requires $50,000 of
after-tax income to fund educational costs for her two adult
children
• Kids have no other income
• Tax on incremental dividend to Candace will attract more tax
than dividend to David and Hannah via the trust
• This structure was feasible under the old TOSI regime
WHAT’S THE BIG DEAL?

7. 7
INCOME SPLITTING ILLUSTRATION
Dividend to Candace Dividend to Kids Dividend to kids w/ TOSI
Incremental dividend $90,000 $50,600 $90,000
Tax on dividend -40,000 -600 -43,200
After-tax funds $50,000 $50,000 $46,800
Tax rate on dividend 44% 1.2% 48%
• Significant income splitting advantage because income is shifted away from parent to kids
• Planning was feasible under old regime provided that the kids were not minors
• This was seen by Finance as an inappropriate advantage
• Paying a dividend to the kids, subject to TOSI, leads to more tax because the entire dividend is
taxed at the top personal rate – is this a reasonable result?

8. 8
TOSI – POST 2017
1. Is there a specified individual?
• Essentially all Canadian resident individuals
2. Is there a source individual?
• An individual resident in Canada who is related to the specified
individual
3. Is there split income?
• Dividend, partnership, trust, interest income and capital gains
4. Is there an excluded amount?

9. 9
TOSI – IMPLICATIONS
• A dividend to an individual from a private company can be
subject to TOSI
• A capital gain realized on the sale of a private company share
will be subject to TOSI – if a dividend on the share would have
been TOSI
• Onus is on the dividend recipient to determine if TOSI applies
• Application of TOSI, means that amount is subject to tax at top
rate for non-eligible dividends – 46.8% in Ontario
• An excluded amount is a good thing because such amounts are
not subject to TOSI

10. 10
EXCLUDED AMOUNT
• Shares acquired as a consequence of death of parent
• Shares acquired on marital breakdown
• CG arising on death of a taxpayer
• CG arising on disposition of shares of an active business
• For individuals 18 and older
(i) Income not derived directly or indirectly from a related business
(ii) Income derived directly or indirectly from an excluded business
• For individuals 18-24
(i) Safe harbour capital return, or
(ii) A reasonable return, having regard to contributions of arm’s length capital by the individual
• For individuals 25 and older
(i) Income from, or a taxable CG from disposition of, excluded shares, or
(ii) A reasonable return in respect of the individual

11. 11
RELATED BUSINESS
• For non-minors TOSI does not apply if the income is not connected
to a related business
• Passive investment income earned in an investment HoldCo may not
be subject to TOSI
• Related business definition considers:
• A source individual’s involvement in the business
• A source individual’s ownership of the business, i.e. 10%
threshold
• Is generally an annual test, i.e. is there a related business in the
relevant year

12. 12
EXCLUDED BUSINESS
• A business if the specified individual is actively engaged on a
regular, continuous and substantial basis in the activities of
the business in either
• In the taxation year or any five prior tax years
• Deemed to meet the test if the individual works in the
business at least an average of 20 hours / week
• May still meet test if working less than the 20 hour benchmark
–based on a factual analysis
• Only need to meet test for any five years
• Does not need to be consecutive and can include years
before 2018

13. 13
• Shares of a corporation owned by the specified individual if:
• Less than 90% of the business income of the corporation for the last tax
year of the corporation was from the provision of services
• The corporation is not a professional corporation
• The shares reflect more 10% of the votes and FMV of all shares
• All or substantially all of the income of the corporation is not from one
or more other related businesses
• Shares that are owned via a trust cannot qualify for the exception because
the specified individual must own the relevant shares directly
EXCLUDED SHARES (25 OR OLDER)

14. 14
REASONABLE RETURN (25 OR OLDER)
• An amount from a related business that would otherwise be split income, if:
The amount is reasonable in light of the following factors relating to the relative contributions of
the specified individual, and each source individual in respect of the specified individual, in respect
of the related business
(i) The work performed in support of the business
(ii) The property contributed, directly or indirectly, in support of the business
(iii) The risks assumed in respect of the business
(iv) The total of amounts that were paid or became payable, directly or indirectly, by any
person or partnership, to or for the benefit of, them in respect of the business
(v) Such other factors as may be relevant

15. 15
DEEMED EXCLUDED AMOUNT
• Aligns with the pension income-splitting rules
• TOSI does not apply to income received by an individual from a related business if:
• Individual’s spouse is 64 before the year; and
• The amount would have been an excluded amount if it were included in the
spouse’s income
(SPOUSE 65 OR OLDER)

16. 16
EXCLUDED SHARE EXAMPLE
Mrs. A Mr. A
OpCo
Mrs. B Mr. B
HoldCo
OpCo
75%
75%
25%
25%
100%
• OpCo in both scenarios operates a grocery store (no service
income)
• The A’s are exempt from TOSI because they own at least 10%
of the OpCo shares
• The B’s own their OpCo shares via a HoldCo
• HoldCo’s income is derived from a related business such that
the HoldCo shares cannot be excluded shares
• TOSI may apply to a dividend to the B’s from HoldCo
- Is this an equitable result?
- HoldCo is a proper planning vehicle for tax,
estate and creditor protection purposes
- The B’s could amalgamate HoldCo and OpCo to
meet the qualified share exemption

17. 17
EXCLUDED SHARES EXAMPLE – CONT’D
• Florida child is 22 years old and a non-resident of
Canada
• Ontario child is 23 years old a resident of Canada
• A divided to Florida child attracts a fixed 15%
Canadian withholding tax – TOSI does not change
this result
• A dividend to Ontario child attracts TOSI and an
effective tax rate fo 46.8%
• Excluded share exception cannot apply because
Ontario child is under 25
Mrs. A
OpCo
Florida
Child
Ontario
Child
80% 10% 10%
- Is this an equitable result?

18. 18
• OpCo in the first scenario is a grocery store with 30
employees (no service income)
• OpCo in the second scenario is an IT consulting business
with 30 employees (all income is from services)
• The A’s are exempt from TOSI because they own at least
10% of the OpCo shares
• The B’s cannot meet the excluded share test because the
income is from the provision of services
- Is this an equitable result?
- Both businesses make a meaningful contribution to the economy
and support 30 jobs
- Why is the services income considered to be nefarious?
Mrs. A Mr. A
OpCo
Mrs. B Mr. B
75%
75%
25%
25%
OpCo
EXCLUDED SHARES EXAMPLE – CONT’D

19. 19
INCOME SPLITTING
NON-CORPORATE
• The key focus of the TOSI regime is on business income
that is generally earned in a corporate setting
• Income splitting with respect to investment income can
still be feasible with corporate or personal funds
• For example, a high net worth individuals can earn
investment income in a trust and share such income
with low tax rate family members, including minors
• Need to comply with attribution rules

20. 20
YOUR WEBINAR PANELISTS
Jim McConnery
CPA, CA, TEP
Welch LLP Partner
Don Scott
FCPA, FCA
Welch LLP Tax Partner,
Director of Tax Services
Gregory Sanders
LLB, CPA
Perley-Robertson, Hill & McDougall
Head of Tax Group

21. 21
QUESTIONS?Thank you for listening.