Since 2018, the tax on split income (TOSI) rules have impacted common estate planning practices. While much of the TOSI focus is on planning during one’s lifetime, post-mortem planning strategies have also been affected. It follows that a post-mortem planning strategy must now be considered in light of TOSI, as these rules provide specific lifetime and estate planning exceptions.

When TOSI applies, the benefits of income sprinkling may be significantly reduced by having tax applied at the top marginal rate on amounts such as dividends from private corporations that would be considered split income when they are paid to certain related individuals. The intention of these rules is to connect an individual’s contribution to a business through labour, capital or risk to the individual’s return from the business.

The TOSI rules include a number of exceptions which have specific application in both the period during one’s lifetime and post-mortem. Whether its income splitting for those aged 65 and over, gains on death and the transfer of property to beneficiaries through one’s will, there are exceptions to be considered when looking to avoid the application of TOSI.

 Over my next few turns I will blog about these and other notable TOSI exceptions to be considered in your estate plan.