CA 2028 TOSI
CA 2028 TOSI: family-member income from related private corp taxed at top marginal rate. Safe harbors: excluded business, excluded shares, age 65+, reasonable return.
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Canada 2028 Tax on Split Income (TOSI) rules tax dividends/income paid to family members from a related private corporation at the top marginal rate (~53.5%) unless a safe harbor applies. Introduced 2018 to stop income-splitting via family-owned corporations. Safe harbors include age 65+, active engagement (20 hr/week average), excluded shares.
Safe Harbor Tests
(1) Spouse 65+ — spouse pension splitting also allowed separately. (2) Active engagement: 20+ hours/week average in business AND principal share of income from this business. (3) Excluded share: business not service-based + ≥90% ARM-controlled + recipient owns ≥10%. (4) Reasonable return: market-rate compensation based on labor + capital contribution + risks. CRA assesses on facts.
Service-Provider Trap
Service businesses (consultants, doctors, lawyers) can rarely use excluded share safe harbor. Specifically excluded. Must rely on active engagement or 65+ safe harbor. Spouse-as-shareholder is risky for service business owners.
Compensation Restructure
Best practice: pay family members salary for actual work (deductible to corp, taxed at their marginal). Dividends to passive family shareholders are TOSI-vulnerable. Owner-only dividend = no TOSI. Spouse 65+ dividends safe. Capital gains on sale of qualified small business shares OK with LCGE.
Last updated May 2026. Sources: CRA TOSI.