TOSI (tax on split income)

TOSI (“tax on split income”) is a rule that taxes at the highest rate any money, particularly dividends (a share of a company’s profits paid to its owners), that an entrepreneur pays to a relative who plays only a minor role in the business. In effect since 2018.

At a glance

Applies to dividends (a share of a company’s profits) and certain types of income paid to a family member
The money is taxed at the highest rate, regardless of the recipient’s actual income
Main exit strategy: the family member actually works for the business, at least 20 hours a week
Other exceptions: the entrepreneur’s spouse is 65 or older, or the relative holds “excluded shares” (a significant stake in an ordinary corporation, held for 25 years or more)
When TOSI applies in Quebec, the money is taxed at the highest marginal rate, approximately 53.3% in 2026 (federal and provincial combined)

Why it matters

Imagine a restaurant owner who pays $40,000 in dividends (a share of the profits) to his son, a college student who never sets foot in the restaurant, just to take advantage of the student’s low tax rate. Before 2018, this was allowed. TOSI has closed that loophole: today, that same dividend would be taxed at the highest rate, sometimes over 50% (about 53.3% in Quebec in 2026), in the son’s hands. There are still legitimate exceptions, especially when the family member actually works for the business. Regulated income sharing is instead carried out through a family trust, by the Capital Gains Exemption (LCGE) shared among family members, or by a estate freeze Well thought out. Before paying a dividend to a family member, have their eligibility verified with the CRA (form T1206): Mistakes can be costly. Bankeo connects you for free with a vetted accountant or CPA to help you structure your family’s compensation without any unpleasant surprises, and we’re here to support you every step of the way.

Frequently asked questions

What is TOSI, in a nutshell?

It’s a rule that prevents a business owner from “shifting” their income to a relative who is not very active, or not active at all, in the business, just to pay less tax. When this rule applies, the money paid to the relative (often a dividend, i.e., a share of the profits) is taxed at the highest rate, with no tax benefits.

What are the main exceptions?

A family member who works an average of at least 20 hours per week at the business (during the current year or over the past five years); a person who holds “excluded shares” (at least 10% of the voting rights and value of a non-professional corporation, aged 25 or older); and the spouse of an entrepreneur aged 65 or older. In these cases, the standard rate applies.

Can you still share income within your family?

Yes, but within certain limits: a reasonable salary for actual work, TOSI exceptions, an RRSP (Registered Retirement Savings Plan), and a TFSA (Tax-Free Savings Account) in each person’s name remain legitimate options. Everything is decided on a case-by-case basis. Bankeo connects you, for free, with a vetted accountant or CPA to structure your family’s compensation without any unpleasant surprises, and we’re here to support you every step of the way.