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Special Tax Scenarios and Split Income Glossary

Master the language of special tax scenarios and split income with this easy-to-navigate A–Z reference

 

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


  • Attribution Rules – Tax provisions that reassign income or capital gains to the original contributor of capital when assets are transferred to a spouse or minor child, to prevent informal income splitting.
  • Canadian-Controlled Private Corporation (CCPC) – A private corporation that is controlled by Canadian residents and not publicly traded; dividends or gains from CCPC shares may trigger TOSI if paid to uninvolved family members.
  • Capital Gains Deduction Carryforward – The unused portion of an individual’s lifetime capital gains exemption that can be carried forward indefinitely and used in a future eligible year.
  • Capital Gains Recharacterization – A TOSI-related provision where capital gains from selling private company shares to a related party are reclassified as split income and taxed at the highest rate.
  • Carryback – A tax provision that allows individuals to apply current-year losses or deductions to a prior year’s return, potentially generating a refund for taxes already paid.
  • Carryforward – A tax rule that permits unused deductions, credits, or losses to be applied in future years to reduce taxable income or taxes payable.
  • Charitable Donation Carryforward – Unused donation amounts that can be applied against up to 75% of net income and carried forward for up to 5 years.
  • Defined Benefit Pension – A retirement plan that pays a predetermined monthly amount, often from an employer-sponsored registered pension plan (RPP); eligible for pension income splitting.
  • Discretionary Family Trust – A trust where trustees can decide how income or capital is distributed among beneficiaries; income from such trusts may be subject to TOSI if tied to a related business.
  • Dividend Sprinkling – A strategy where dividends are paid to multiple family members to lower overall tax; often caught under TOSI if recipients are not actively involved.
  • Excluded Amount – A category of income that is not subject to the Tax on Split Income (TOSI) due to factors like capital contributions, labour, or business involvement.
  • Excluded Business Income – Income earned by a family member who actively works in a related business for at least 20 hours per week during the year or in five previous years; exempt from TOSI.
  • Excluded Shares – Shares that qualify for a TOSI exclusion if the individual is over age 24, owns at least 10% of both votes and value, and the corporation earns less than 90% of its income from services.
  • Family-Owned Corporation – A private business controlled by one or more family members, where split income rules may apply to other relatives receiving dividends or income.
  • Family-Run Corporation – A private company operated by family members, often considered a related business under TOSI if income flows to uninvolved relatives.
  • Family Trust – A legal structure used to distribute income to multiple family members; may be used for income splitting if set up properly to avoid triggering attribution rules.
  • Form T1A – A CRA form used to request a carryback of non-capital or net capital losses to a prior year’s tax return.
  • Form T1032 – A CRA form used by couples to jointly elect to split eligible pension income for tax purposes.
  • Form T1206 – A CRA form used to calculate and report the Tax on Split Income (TOSI), applying the top marginal tax rate to non-excluded split income.
  • Form T2209 – A tax form used to claim the foreign tax credit on Canadian tax returns, allowing unused credits to be carried forward for up to 10 years.
  • Gifting to Adult Children – A tax strategy where capital is given to a child aged 18 or older; attribution rules do not apply, so income and gains are taxed in the child’s hands.
  • Guaranteed Income Supplement (GIS) – An income-tested benefit for low-income seniors that may be reduced or lost if pension income splitting increases reported income.
  • Income Splitting – A tax planning approach that reallocates income from a high-income earner to a lower-income family member to reduce household tax; often limited by attribution rules.
  • Inheritance (TOSI Context) – Income received from an estate or due to a death that may qualify as excluded and not subject to TOSI.
  • Inherited Property (TOSI Context) – Income or capital gains resulting from death or inheritance that may qualify for exclusion from TOSI, depending on the deceased’s business involvement.
  • Joint Account – A bank or investment account held in the names of two or more individuals; for tax purposes, income is attributed based on who contributed the funds and who is entitled to the earnings.
  • Joint Election to Split Pension Income – The process by which spouses or common-law partners jointly agree to allocate up to 50% of eligible pension income from one partner to the other using Form T1032.
  • Joint Ownership Attribution Risk – A tax situation where income from a joint account is reassigned to the actual contributor of funds if proper documentation of ownership or contribution is lacking.
  • Net Capital Loss – A loss resulting from the sale of capital property, which can be carried back three years or carried forward indefinitely to offset taxable capital gains.
  • Non-Arm’s-Length Party – A person or entity closely related to the taxpayer (such as a family member), where transactions may trigger TOSI rules due to lack of independent dealings.
  • Non-Capital Loss – A loss from business, property, or employment sources that can be carried forward for 20 years or back for 3 years to offset income.
  • Notice of Assessment – A summary issued by the CRA after a tax return is assessed, showing unused amounts like RRSP contributions or carryforward balances.
  • OAS Clawback – A reduction in Old Age Security payments that occurs when an individual’s net income exceeds a specific threshold; pension splitting can help avoid or reduce this clawback.
  • Passive Income (TOSI Context) – Investment or dividend income received from a related business by a family member who is not actively involved; potentially subject to TOSI.
  • Pension Income Splitting – A tax planning strategy that allows eligible retirees to allocate up to 50% of their qualifying pension income to a spouse or common-law partner for tax reporting purposes.
  • Prescribed Interest Payment Deadline – The requirement that interest on a prescribed rate loan must be paid annually by January 30 to prevent retroactive attribution of income.
  • Prescribed Rate Loan – A structured loan made at CRA’s set interest rate to a spouse, child, or trust; when properly documented and serviced, it allows investment income to be taxed in the borrower’s hands.
  • Private Corporation Share Disposal – The act of selling shares in a private company, which may result in capital gains subject to TOSI if sold to a related person or through a non-arm’s-length arrangement.
  • Professional Services Corporation – A corporation providing services like legal or accounting work, often excluded from TOSI exemptions such as the excluded shares rule.
  • Reasonable Return – Income that reflects a fair return on capital, labour, and risk contributed to a business; used to determine exclusions from TOSI for individuals over age 24.
  • Registered Pension Plan (RPP) – A government-recognized retirement plan established by an employer that pays out pension income; eligible for pension splitting.
  • Registered Retirement Income Fund (RRIF) – A retirement account that holds converted RRSP savings and provides taxable withdrawals; RRIF withdrawals after age 65 may qualify for pension splitting.
  • Related Business – A business in which a family member is significantly involved and from which other family members may receive income; such income may be subject to TOSI.
  • Related Business Arrangement – Any income-generating setup involving family members where a business is owned or managed by one individual and income is allocated to another, potentially triggering TOSI.
  • Safe Harbour Capital Return – An exception to TOSI for individuals aged 18–24 who contribute capital from an arm’s-length source, allowing their income to be excluded.
  • Shareholder Benefits – Non-cash advantages (such as personal use of corporate assets or low-interest loans) provided to shareholders or their family members, which may be treated as split income under TOSI.
  • Spousal RRSP – A retirement savings plan contributed to by the higher-income spouse for the benefit of the lower-income spouse; allows income to be taxed at the lower rate upon withdrawal, under specific rules.
  • Split Income – Specific types of income diverted to a family member from a related business, such as dividends or trust distributions, which may be taxed at the highest rate under TOSI.
  • T5 Slip (Joint Account Context) – A tax slip that reports investment income; if issued to both spouses in a joint account, it does not override attribution rules unless contributions are documented.
  • Tax on Split Income (TOSI) – A tax rule that applies the top marginal rate to certain income earned by family members from related businesses, unless exclusions apply.
  • TOSI Exclusion Criteria – Specific conditions used to determine whether income is exempt from TOSI, including hours worked, ownership share, capital contributions, and age.
  • Tuition Carryforward – Unused tuition amounts reported by a student that can be applied to future tax years if not fully claimed in the year earned.
  • Written Loan Agreement – A formal document required for prescribed rate loans, specifying terms, the prescribed interest rate, and repayment schedule; essential to avoid attribution rules.