What is the primary purpose of the Tax on Split Income (TOSI) rules?

Question: What is the primary purpose of the Tax on Split Income (TOSI) rules?

Answer options:

• To prevent income splitting with adult children who are actively involved in a family business.
• To ensure that all investment income is taxed at the highest marginal rate. ✅ To avoid income splitting where income is earned from a related business and paid to specified individuals without a substantive contribution.
• To simplify tax reporting for small business owners.

Correct answer: To avoid income splitting where income is earned from a related business and paid to specified individuals without a substantive contribution.

Explanation: The primary purpose of TOSI (Tax on Split Income) is to prevent individuals from reducing their tax payable by splitting income with family members, typically through private corporations, where the recipient does not make a substantive contribution to the business.