What is TOSI?

TOSI (Tax on Split Income) refers to Canadian tax rules introduced in 2018 to limit income-splitting through private corporations. Income that falls under TOSI is taxed at the highest marginal rate, regardless of the recipient's actual tax bracket.

What's affected

TOSI applies to dividends, interest, and capital gains paid from a private corporation to family members of the principal owner, unless an exception applies.

Common exceptions

The "excluded amount" rules let you avoid TOSI if the family member:

• Is 65 or older (spousal income-splitting allowed at retirement age)
• Worked an average of 20+ hours per week in the business during the year, or in 5 prior years
• Owns 10%+ of voting and equity shares in a non-services business and has done so for 24 months ("excluded shares")
• Receives a "reasonable return" given their labour, capital, and risk contributions

Practical effect

TOSI eliminated the most aggressive income-splitting structures (paying dividends to a non-working spouse or adult child to use their lower bracket). Legitimate structures where family members actively work in or have invested in the business still work but require careful documentation.

Do not assume historical splitting structures comply with current rules — many do not.

Related terms