In Kathryn Walker, “The Services Carve-Out from TOSI” Canadian Tax Focus 4:4 (May 2018), the author considers the meaning of business income from the “provision of services” in the definition of excluded shares in s 120.4(1). She notes that the Income Tax Act uses the phrase in only a few other places and provides no guidance on its meaning. The few cases that refer to the phrase do not provide any guidance either. The author speculates about the meaning to be ascribed to the phrase and concludes that “[t]his review of what “provision of services” might mean shows that large sections of the economy could be vulnerable to the new TOSI.”
Alex Klyguine, in “Income Splitting After the New Private Corporation Proposals: Salaries Paid to Family Members” 8:1 Canadian Tax Focus (February 2018), discusses Gabco Limited v MNR, 68 DTC 5210 (Ex. Ct.)), and suggests that “the boundaries of the reasonableness test may become the new frontier for income splitting in private corporations.” What is “reasonable”? Fair market value is not necessarily the relevant standard. In Gabco, the court wrote:
It is not a question of the Minister or this Court substituting its judgment for what is a reasonable amount to pay, but rather a case of the Minister or the Court coming to the conclusion that no reasonable business [person] would have contracted to pay such an amount having only the business consideration of the appellant in mind.
Let’s see what the harassed tax adviser (or front-line CRA auditor) must do to answer basic client questions about the new tax-on-split-income (TOSI) rules. Continue reading