Tax lawyer Stuart Bollefer earned his LLB from the University of Toronto. In practice for more than 30 years, Stuart Bollefer is a partner at Aird & Berlis LLP, where he develops innovative solutions for his clients’ tax issues. He also speaks frequently about tax issues and has given several presentations on the new tax on split income (TOSI) rules.
Income splitting has been used for a number of years as a way of benefitting small businesses by allowing the transfer of income from family members in higher tax brackets to those in lower tax brackets. The income could be transferred as salaries for work done or as dividends paid on shares owned. The result is significant tax savings.
However, as of January 2019, the federal government’s new TOSI rules came in effect, removing the split income tax advantages. The new rules include as split income most types of distributions from corporations resulting in the highest marginal tax rate. Effectively, split income gains enjoyed by Canadian family members are taxable at the highest marginal rate.
The rules are vary comprehensive but there are exceptions to the application of these rules. One exception applies to persons who are actively involved in the business. Other exemptions relate to spouses who are over age 65. Business owners should consult with a tax professional to see if they qualify for an exemption to these TOSI rules.