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Overview of New Draft Legislation to Address Income Sprinkling

On December 13, the government unveiled the final version of the new legislation regarding Tax on Split Income (TOSI) rules effective January 1, 2018.

Overall, the legislation proposals extend the tax on split income (“TOSI”) to individuals aged 18 and over (specified adult individuals) as they suggested in the July 2017 proposals.  The intention of the proposed legislation is to simplify and better target the rules.

While maintaining the general scheme of the July 2017 draft legislative proposals, the revised version includes changes to better target and simplify their application.


  • Exclusion from the application of the TOSI for specified adult individuals, including those aged 18 to 24, who contribute labour to a related business on a regular, continuous and substantial basis in the taxation year of the individual in which an amount is received or in any five previous taxation years (the years do not have to be consecutive or after 2017).  To provide greater certainty an individual who works an average of 20 hours per week during the part of the year that a business operates will be deemed to be actively engaged on a regular, continuous and substantial basis for the year.
  • The TOSI will not apply to specified individuals over the age of 24 years in respect of income received from “excluded shares” owned by the individual.  This exclusion from the TOSI will apply to income received from a share (including from the disposition of the share) if the following conditions are met:
    • The individual has attained the age of 25 years in or before the year;
    • The individual owns at least 10% of the outstanding shares of a corporation in terms of votes and value; (taxpayers will have until the end of 2018 to meet the condition of owning at least 10%) and
    • The corporation meets the following conditions:
      • It earns less than 90% of its income from the provision of services;
      • It is not a professional corporation (i.e., a corporation that carries on the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor); and
      • All or substantially all of its income is not derived from a related business in respect of the specified individual.
    • Lifetime capital gains exemption – all previous proposed legislation related to s110.6 has been withdrawn.  Therefore it appears that trusts will still be able to allocate out a capital gain eligible for the capital gains exemption.
    • The government will not proceed with the proposed measures to apply the TOSI to compound income.

If you would like to read the legislation or the commentary, please see the attached links: .  CRA has also released how they intend to apply the new rules.  The link for this is:

If you have questions on how these changes may affect you, please contact your Partner at SB Partners or call (905) 632-5978.

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