John, a 60-year-old business owner, wants to sell his actively managed private corporation to his 22-year-old daughter, Emily, who has been working full-time in the business for three years. He plans to fund part of the sale price through a low-interest loan. Which of the following statements regarding the potential application of TOSI is most accurate in this scenario?

Question: John, a 60-year-old business owner, wants to sell his actively managed private corporation to his 22-year-old daughter, Emily, who has been working full-time in the business for three years. He plans to fund part of the sale price through a low-interest loan. Which of the following statements regarding the potential application of TOSI is most accurate in this scenario?

Answer options:

• TOSI would apply to any dividends Emily receives from the corporation, as she is a child of the owner, regardless of her involvement. ✅ TOSI would not apply to any dividends Emily receives if she qualifies for the 'excluded business' exception, given her age and active involvement.
• TOSI would apply to any interest income John receives from the loan to Emily due to the attribution rules for business income.
• TOSI would only apply if Emily were under 18 at the time of the share transfer, not at 22 years old.

Correct answer: TOSI would not apply to any dividends Emily receives if she qualifies for the 'excluded business' exception, given her age and active involvement.

Explanation: Emily, being over 18 and actively and regularly engaged in the business (full-time for three years), can likely qualify for the 'excluded business' exception to TOSI. This means that dividends received from the corporation would not be considered 'split income' subject to TOSI.