Dr. Emily Chen, a successful medical professional, incorporated her practice two years ago. She has accumulated significant retained earnings in her professional corporation. Her 17-year-old son, Daniel, is actively involved in marketing for the practice during his summer breaks, and she pays him a reasonable wage. She is considering paying Daniel dividends from the corporation. How would the Tax on Split Income (TOSI) rules likely apply to these dividends?

Question: Dr. Emily Chen, a successful medical professional, incorporated her practice two years ago. She has accumulated significant retained earnings in her professional corporation. Her 17-year-old son, Daniel, is actively involved in marketing for the practice during his summer breaks, and she pays him a reasonable wage. She is considering paying Daniel dividends from the corporation. How would the Tax on Split Income (TOSI) rules likely apply to these dividends?

Answer options:

• The dividends paid to Daniel would be exempt from TOSI because he is actively involved in the business. ✅ TOSI would apply to the dividends paid to Daniel because he is a specified individual and under 18.
• TOSI would not apply if Daniel is paid a reasonable amount for his marketing services, regardless of his age.
• The dividends would be subject to TOSI if Daniel is under 25, even with active involvement, unless he is a full-time employee.

Correct answer: TOSI would apply to the dividends paid to Daniel because he is a specified individual and under 18.

Explanation: Under TOSI rules, any split income (including dividends) received by an individual under 18 years of age is generally subject to TOSI, regardless of whether they perform work for the business. This is because the exemption for active engagement typically applies to individuals aged 18 or over. Daniel's wages are not subject to TOSI as they are 'excluded income' as reasonable remuneration.