Overview of New Draft Legislation to Address Income Sprinkling

Highlights:

• 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.  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;
  • 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:
• • • earns less than 90% of its income from the provision of services;
    • 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• Lifetime capital gains exemption – all previous proposed legislation related to s110.6 has been withdrawn.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 did not proceed with the proposed measures to apply the TOSI to compound income.

Updated January 2025