The ability to use 15(2) and 20(1)(j) for income averaging has been impaired by the TOSI rules. What’s worse, if an individual includes an amount in income under 15(2) that is split income, he or she will not be entitled to a deduction under 20(1)(j) upon repaying the loan.
Although individual taxpayers who are already paying tax at the highest marginal rate may overlook the TOSI regime, this outcome suggests that TOSI may affect high-rate taxpayers as well. As long as one’s shareholder loan could be caught as split income, whether a person is already paying the high rate of tax is irrelevant—the paragraph 20(1)(j) deduction may not be available if a strict reading of the Act is enforced.
Martin Lee, “Shareholder Loans: TOSI Prevents Deduction on Repayment” Canadian Tax Focus 9:2 (May 2019)
