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If you’re 25 or over, you can also be exempt from the TOSI rules if you hold “excluded shares.” These are shares in a private corporation which give you 10 per cent of both the votes and the value. Unfortunately, this exception will not be available for either professional corporations or services businesses.

Photo by Canadian Press/Nathan Denette

And if none of these exceptions apply, you are permitted a “reasonable return” on your shares taking into account a variety of factors including the work you performed, the property you contributed and the risks you have assumed.

If you’re between 18 and 24, unfortunately the only factor taken into consideration in determining the reasonable return are capital contributions made with “arm’s-length capital.” Other than that, these individuals will only be permitted to earn a “safe harbour capital return,” defined as a return on his or her contributed capital that is either equal to or less than the prescribed rate — which is currently one per cent.

What about dividends paid to your spouse or partner?

There is one further exemption aimed at helping spouses and common-law partners in retirement. The new TOSI rules won’t apply to private company dividends or capital gains paid to you if your spouse or partner “meaningfully contributed to the business” and is aged 65 or over. This is a softening of the original rule which would have taxed all dividends paid to a spouse who wasn’t working in the business at the top rate. According to the government, this is “in recognition of the special challenges associated with planning for retirement and managing retirement income. (T)he new approach to income sprinkling will be better aligned with the existing pension income splitting rules. This also reflects the fact that a business can play an important part in supporting its owner in retirement.”