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Tip 3 – Tax on Split Income | Tax on Passive Income

This note continues Tax Principal Raffaele Ruberto’s ten-week Friday Tax Tip series, helping business owners and their family members mitigate the new Tax on Split Income (“TOSI”) and upcoming Tax on Passive Income (“TOPI”) rules.

As always, if there are any topics you would like addressed, or have specific questions you need answered, just send an email to

Tax on Split Income | Tip 3

If you and your family members are holding the same class of equity shares in your operating company (or via a holding company) the Tax on Split Income (TOSI) rules might be restricting your ability to allocate dividends amongst the family members.

When a dividend is issued to a class of shareholders, everyone receives it based on their percentage of ownership.

As we approach the end of 2018, you may want to gain flexibility by authorizing different classes of equity shares. Shareholders can then exchange their current equity shares for a different class of shares.

This strategy will allow dividends to be paid to individuals who are not subject to TOSI. The remaining shareholders, though not receiving dividends, can participate in the growth of the company and possibly shelter a portion, or all, of their gain (to be discussed in next week’s issue).

Please contact SB Partners to learn more, or to discuss any of our signature TOSI Solutions.

Tax on Passive Income | Tip 3

As we approach the end of 2018, there is still time to mitigate your exposure to the new Tax on Passive Income (TOPI) rules. You might, for example, switch to investments that appreciate in value instead of paying investment income. In doing so, you may trigger a larger than ordinary capital gain for 2018. The last day to settle trades for 2018 is December 27, 2018. This implies your small business deduction limit might not be available for 2019; however, the non-taxable portion of capital gains generated will create a capital dividend account pool which can be utilized to circumvent the TOSI rules for certain non-active family members.

Please contact SB Partners to learn more, or to discuss a variety of our signature TOPI Solutions.

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