Dec 21, 2017
An Ode to Income Splitting by Robins Appleby LLP
'Twas the middle of July, with days so hot and hazy
When the Feds announced new tax rules, which some said were so crazy
With complicated language and broad applications
They targeted the shareholders of private corporations
And whilst giving all small business owners an undeserved scare
It was all done in the name of having them pay their "fair share"
The pundits all weighed in, with criticism abound
They wrote articles and letters, decrying the measures as unsound
And as Summer turned to Fall and pressure grew and grew
The number of proposed changes shrunk from many to just a few
But with still so much uncertainty and so much left unclear
Finance promised us an update before the end of the year
And on December 13th, as the days drew short and cold
We received an early Holiday gift – amended proposals to behold!
The aim was to simplify "TOSI", the rules on "income splitting"
An "advantage" from which Finance said the wealthy were benefitting
To address this serious issue that they sought to mitigate
They expanded the scope of "split income", taxed at the top marginal rate
The aspect of the July proposals which caused the most confusion
Was how one should interpret the "reasonableness" exclusion
So within its December bundle of revised legislation
Finance sought to simplify the rules on "split income" taxation
And while the rules remain broad, and many will still be caught
Numerous exclusions now specify some persons who will not
Like the business owner who has turned age 65-plus
And can split income with her spouse without causing a fuss
Or the child who has now reached 18 years of age
And works in his father's business but has been "actively engaged"
Before December's updates this definition was not precise
But now we know that 20 hours per week will suffice
If you're 25 and own 10% of a business which provides no service
Your dividends are not "split income" – there's no reason to be nervous
With respect to qualified shares of a small business corporation
Sales will not be caught by "TOSI" – a cause for celebration!
The proposals also explain that if you die while owning shares
Your past labour, contributions, and business risks will accrue to your heirs
Now if none of these exclusions apply, please do not be stressed
The new rules still contain the good 'ole "reasonableness" test
Just account for the business contributions of all the proper actors
And assess labour, capital, risk and, of course, "other relevant factors"
So if your head is spinning now and you feel like you can't see
Be thankful for the Tax Group at Robins Appleby
With experience and expertise we will guide you through this maze
So that you and your family can enjoy some Happy Holidays!
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