--- title: "TOSI (Tax on Split Income): When Family Dividends Are Caught" url: https://www.everstonecpa.com/blog/tosi-tax-on-split-income-canada description: "How the tax on split income applies to dividends paid to a spouse or adult child, and the exclusions that take a family member outside it. Check yours." type: guide updated: 2026-10-08 summary: "The tax on split income (TOSI) rules tax dividends paid to family members at the top personal rate unless a specific exception applies. Common exceptions involve a family member who works an average of at least 20 hours a week in the business, shareholders age 25 or older holding “excluded shares,” and certain retirement or inherited-property situations." faq_count: 7 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) TOSI: The Rules on Paying Dividends to Family Members Tax # TOSI, the tax on split income: paying dividends to family members By EverStone CPA · Updated September 2026 · 7 min read **Quick answer:** The tax on split income (TOSI) rules tax dividends paid to family members at the top personal rate unless a specific exception applies. Common exceptions involve a family member who works an average of at least 20 hours a week in the business, shareholders age 25 or older holding “excluded shares,” and certain retirement or inherited-property situations. Simply adding a spouse or adult child as a shareholder no longer guarantees safe income splitting. Top rate by default — exceptions are narrow. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online) ## Key takeaways - TOSI taxes split income paid to family members at the top personal rate, not graduated rates. - It generally applies to dividends (and some other amounts) paid by a private corporation to a related individual. - The main exceptions involve genuine work in the business, age combined with “excluded shares,” and retirement or inherited-property situations. - “Excluded shares” generally require the family member to be 25 or older and meaningfully connected to the business, not just related to the owner. - Adding a spouse or adult child as a shareholder no longer automatically achieves income splitting. For years, paying dividends to a lower-income spouse or adult child was one of the simplest tax moves available to an incorporated business owner. That changed. The tax on split income — TOSI — rules were expanded significantly in 2018, and they turned income splitting from a formality into something that has to be earned and documented. If you’re paying, or thinking about paying, dividends to family members who are shareholders, understanding TOSI isn’t optional. ## What the tax on split income actually does TOSI exists to stop “income sprinkling” — routing dividends or other income to family members in lower tax brackets purely to reduce the family’s overall tax bill, regardless of what those family members actually contributed. Where TOSI applies, the split income is taxed at the **top personal marginal rate**, which typically eliminates the benefit of paying it to someone in a lower bracket in the first place. TOSI doesn’t ban paying dividends to family members — it just removes the tax advantage unless you can point to a recognized exception. **Paying dividends to your spouse or adult children?** We check each payment against the TOSI exclusions before it is declared and prepare the T5s and returns, at a fee quoted in writing. Try the [salary vs dividends calculator](https://www.everstonecpa.com/salary-vs-dividends-calculator), or [get a year-end quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## Who TOSI can reach TOSI generally applies to dividends and certain other amounts received by an individual from a private corporation that’s connected to a family member, a spouse or common-law partner, a child, or other related individuals — who is or was actively involved in that business. It doesn’t matter that the payment is legally structured as a dividend on shares the family member owns; if the underlying relationship and involvement don’t meet an exception, TOSI can still apply. **The default assumption changed.** Before 2018, the starting assumption for many advisors was that dividends to adult family shareholders were fine. Today the safer starting assumption is the opposite: split income is taxed at the top rate *unless* you can affirmatively show an exception applies. Not sure how this applies to you? Every corporation’s situation is different. Send an enquiry to a CPA and get a straight answer, plus a fixed quote before any work starts. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [See fixed fees](https://www.everstonecpa.com/pricing) ## The main exceptions, in plain language TOSI includes several carve-outs. None of them are automatic — each has to be met and, ideally, documented as the year goes. - **Excluded business.** If the family member is actively engaged in the business on a regular, continuous and substantial basis — generally understood as averaging at least 20 hours a week during the year, or having done so in any five earlier years that don’t need to be consecutive — dividends to them can be excluded from TOSI. - **Excluded shares.** Available generally to shareholders who are 25 or older, hold a meaningful, direct equity stake, and meet specific tests around the type of income the corporation earns. This exception looks at the shares themselves rather than hours worked. - **Reasonable return.** For some family members, particularly those in their late teens or twenties who don’t clearly meet the excluded-business or excluded-shares tests, a facts-based “reasonable return” analysis looks at what they actually contributed — labour, capital, or risk — relative to what they received. - **Retirement.** Dividends to the spouse of someone who was actively engaged in the business before reaching a certain retirement age can, in some circumstances, remain excluded from TOSI. - **Inherited property.** Shares received as a result of someone’s death can sometimes retain their excluded status in the hands of the person who inherited them. Every one of these exceptions is fact-driven. None of them is satisfied just by the corporate registry listing a family member as a shareholder. ## Why “just put my spouse on the shares” isn’t safe advice anymore Before TOSI was broadened, the mechanics of income splitting were mostly about share structure: issue the right class of shares to the right family member, and dividends could flow at their lower rate. That’s no longer sufficient. Now the corporation, and the family member receiving the dividend, need to be able to show — if CRA asks, which exception applies and why. A spouse who does the books for two hours a week, or an adult child whose name is on the share register but who has never worked in the business, is exactly the profile TOSI was designed to catch. ## Documentation matters as much as the plan Because these exceptions turn on facts — hours worked, role, capital contributed, timing of involvement — the paperwork you’d want in an audit is the same paperwork that should exist from day one. That means timesheets or a record of hours, a description of the family member’s role, meeting minutes if capital or shares changed hands, and clarity on how compensation was decided. Waiting until CRA asks is the wrong time to start building that record. ## The bottom line TOSI didn’t end income splitting for family businesses, but it did end the era where it was a simple structuring exercise. Before paying, or continuing to pay — dividends to a spouse, child, or other family shareholder, it’s worth confirming which exception you’re actually relying on and whether you can support it. That review pairs naturally with a broader look at [salary versus dividends](https://www.everstonecpa.com/blog/salary-vs-dividends-2026) for your own compensation, since the two decisions usually get made together. If family members hold shares, the dividend rights written into your [shareholders’ agreement](https://www.everstonecpa.com/blog/shareholders-agreement-tax-implications) are part of the same picture. Sources - [Canada Revenue Agency — Corporation income tax](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations.html) - [Canada Revenue Agency — Individuals](https://www.canada.ca/en/revenue-agency/services/tax/individuals.html) - [Canada Revenue Agency — Forms and publications](https://www.canada.ca/en/revenue-agency/services/forms-publications.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online) before acting on anything here. Retirement-stage splitting works on a different footing entirely, through a joint election rather than share structure — see [pension income splitting and what qualifies](https://www.everstonecpa.com/blog/pension-income-splitting-canada). About this article **EverStone CPA** Prepared and reviewed by a Chartered Professional Accountant at EverStone CPA, a CPA firm working with small and midsized businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) ### Related articles [Salary vs. dividends →](https://www.everstonecpa.com/blog/salary-vs-dividends-2026) [Leave money in the corp, or pay it out? →](https://www.everstonecpa.com/blog/leave-money-in-corporation-or-pay-out-canada) [Corporate tax services →](https://www.everstonecpa.com/tax-services) [Paying your spouse a salary instead →](https://www.everstonecpa.com/blog/paying-your-spouse-a-salary-canada)[Inter-corporate dividends, and the conditions on them →](https://www.everstonecpa.com/blog/inter-corporate-dividends-canada) FAQ ## Frequently asked questions **What is TOSI?** TOSI stands for tax on split income. It’s a rule that taxes certain income — most commonly dividends — paid by a private corporation to a related family member at the top personal marginal rate, removing the tax benefit of paying that income to someone in a lower bracket, unless a specific exception applies. **Who does TOSI apply to?** TOSI can apply to spouses, common-law partners, children, and other related individuals who receive dividends or certain other amounts from a private corporation connected to a family member who is or was actively involved in the business — unless the family member receiving the income qualifies for an exception. **What is the “excluded business” exception?** A family member may be exempt from TOSI if they’re actively engaged in the business on a regular, continuous and substantial basis — generally understood as averaging at least 20 hours per week during the year, or having done so in any five earlier years that don’t need to be consecutive. **What are “excluded shares”?** Excluded shares are a separate exception generally available to shareholders who are 25 or older, hold a meaningful direct equity stake in the corporation, and meet specific tests around the type of income the business earns. Meeting this test is fact-specific and should be confirmed with a CPA before relying on it. **Is it still possible to split income with family members?** Yes, but it now depends on meeting a specific, documented exception rather than simply issuing shares to a relative. Genuine involvement in the business, age, share structure, and reasonable-return tests all factor in — which is why income-splitting plans need a review before dividends are paid, not after. **What records support a TOSI exception?** The same records you would want in an audit: a log of hours worked, a written description of the family member’s role, minutes where shares or capital changed hands, and a note on how their compensation was decided. Because the exceptions turn on facts rather than share structure, the record has to be built as the year goes rather than reconstructed afterwards. **Does TOSI apply to a salary paid to a family member?** No. TOSI targets dividends and certain similar amounts, not employment income. A reasonable salary for work actually performed is employment income earned by the person doing the job, and it falls outside the split-income rules. It faces a different test instead: the amount has to be reasonable for the work, and it has to run through payroll properly. ## Paying dividends to family shareholders? Tell us who owns shares and what each person does in the business. A CPA replies by email within one business day with what is safe to pay and a fixed fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) **Run your own numbers with the free calculators:** [see which pay mix wins](https://www.everstonecpa.com/salary-vs-dividends-calculator) · [check when your T2 is due](https://www.everstonecpa.com/t2-deadline-calculator) · [Tax instalment calculator](https://www.everstonecpa.com/tax-instalment-calculator) [← Terminating an employee: final pay, the vacation payout and the ROE](https://www.everstonecpa.com/blog/terminating-an-employee-canada-final-pay) [Business travel expenses: what the CRA accepts →](https://www.everstonecpa.com/blog/travel-expenses-business-canada-cra) ## Have a question about this? Ask it free through [the quick-question form](https://www.everstonecpa.com/quick-question) and a CPA replies by email within one business day. For something that needs a proper look, a one-off **Advice Call** is a paid 45-minute session with a Chartered Professional Accountant: $225 plus GST, booked by email or phone with a secure payment link. It is credited against your first invoice if you become a client within 60 days. Looking for an accountant to take this on rather than an answer? [Send an enquiry](https://www.everstonecpa.com/book-online). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “Personal. Professional. Responsive. Plus he saved me a bundle!” Corrin Skalbeck · Google Local Guide --- Source: https://www.everstonecpa.com/blog/tosi-tax-on-split-income-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online