What does TOSI mean in TAX
TOSI stands for Tax On Split Income, a term used in Canadian tax law. It refers to the tax rules that apply when income is split between spouses or common-law partners. The purpose of TOSI is to prevent income splitting for tax avoidance purposes.
TOSI meaning in Tax in Business
TOSI mostly used in an acronym Tax in Category Business that means Tax On Split Income
Shorthand: TOSI,
Full Form: Tax On Split Income
For more information of "Tax On Split Income", see the section below.
Meaning of TOSI in Business
In business, TOSI becomes relevant when one spouse or common-law partner earns a significantly higher income than the other. Splitting income between them can result in tax savings due to the progressive nature of the Canadian tax system. However, TOSI rules aim to limit this tax avoidance strategy.
How TOSI Works
TOSI rules apply when the following conditions are met:
- Income is split between spouses or common-law partners.
- The income is not from a business in which both spouses are actively involved.
- The higher-income spouse's income exceeds a certain threshold set by the Canada Revenue Agency (CRA).
Consequences of TOSI
If TOSI rules apply, the income split between spouses will be subject to additional tax. This tax is known as the TOSI penalty. The TOSI penalty is calculated as a percentage of the income that is split. The percentage varies depending on the amount of income that is split and the income level of the higher-income spouse.
Essential Questions and Answers on Tax On Split Income in "BUSINESS»TAX"
What is the Tax on Split Income (TOSI)?
The Tax on Split Income (TOSI) is a tax applied to certain types of income that is split between spouses or common-law partners. TOSI is designed to prevent income from being artificially split to reduce overall tax liability.
What types of income are subject to TOSI?
TOSI applies to income from the following sources:
- Employment income from a business or property owned by the other spouse
- Pension and annuity income
- Income from trusts
- Interest and dividend income from investments owned by the other spouse
Who is responsible for paying TOSI?
The spouse who receives the income is responsible for paying TOSI. However, the amount of TOSI can be reduced or eliminated depending on the income levels of both spouses.
How is TOSI calculated?
TOSI is calculated as the difference between the tax payable on the income if it were reported by the recipient spouse and the tax payable if it were split between both spouses. The tax rate applied to the difference is the marginal tax rate of the recipient spouse.
Can spouses avoid TOSI by having one spouse earn significantly less than the other?
Yes, spouses can reduce or eliminate TOSI by ensuring that the income-earning spouse earns significantly less than the non-income-earning spouse. However, this strategy may not be feasible or desirable in all cases.
Are there any exceptions to the TOSI rules?
Yes, there are certain exceptions to the TOSI rules, including:
- Income from a business or property that is owned equally by both spouses
- Income from a trust that is established for the benefit of a minor child
Final Words: TOSI is a complex tax rule that can have significant implications for couples who wish to split income. It is important to understand the TOSI rules to avoid unexpected tax penalties. Individuals should consult with a tax professional to determine if TOSI applies to their specific situation.