05/26/2026
Four things every Canadian owner-manager should know about TOSI and the **excluded shares carve-out**:
**1) TOSI applies to adult family members, not just minor kids.** Since 2018, section 120.4 of the Income Tax Act applies the top combined marginal rate (~53.5% in BC) to dividends, interest, and certain partnership/trust income paid to adult family members from a related private business — unless a statutory carve-out applies. Spouses, parents, adult children, siblings, and their spouses are all in scope.
**2) The excluded shares carve-out has three tests + a professional-corp disqualifier.** Recipient must be 25 or older. They must own at least 10% of votes AND 10% of value of all shares of the corp (measured at the time of the dividend, not year-end). Less than 90% of the corp's business income must be from services. And — separately — the corp must NOT be a professional corporation (medicine, law, dentistry, accounting, engineering, chiropractic, veterinary).
**3) The services test is where most owner-managers fail.** Pure consulting (management, IT, marketing), single-trade labour-only subcontractors, and professional practices typically fail (>90% services). Retail, wholesale, manufacturing, mixed construction with meaningful materials, real estate holding, and restaurants typically pass.
**4) Five carve-outs exist, not just one.** Excluded shares is the cleanest. The other four: excluded business (20+ hours/week current or in any 5 prior years), age 65+ reasonable return, age 25+ reasonable return on contributions, and death/disability transitions. Each fits a different situation; each carries its own evidence requirements (timesheets, capital records, contemporaneous documentation).
Full guide — the three tests, the five carve-outs, three worked scenarios, and the structural levers that get a failing structure back inside the rule:
https://modernaxis.ca/blog/tosi-excluded-shares-rule
