The tax on split income (TOSI) applies the highest marginal personal tax rate to certain income — primarily dividends, capital gains, and similar passive returns — received by a specified individual from a business related to a family member. The rules were significantly broadened in 2018 to limit income splitting through private corporations.
Several exceptions can take an amount outside TOSI. These include amounts that are a reasonable return for the individual's contributions, income from an excluded business in which the individual is actively engaged on a regular and continuous basis, dividends from excluded shares meeting defined ownership and income conditions, and certain age-based and retirement-related exclusions. Because many of the exceptions are not available to professional service corporations, structuring around TOSI requires close attention to the specific facts.