Individual B is a source individual in respect of Individual A. Individual A holds only 5% of the shares of Aco but is “actively engaged on a regular, continuous and substantial basis” (“Involved”) in the active business of Aco for 2017 through 2019, so that the dividends received by her on her shares of Aco are excluded amounts.
If Individual A were on maternity leave throughout 2020, or could not work during that period because of an accident, but thereafter returned to work on the same Involved basis as before, would she be considered to be Involved during 2020? What if the accident rendered her permanently disabled?
CRA responded:
The more an individual is involved in the management and/or day-to-day operations of the business, the more likely it is that the individual will be considered to be actively engaged in the business, on a regular, continuous and substantial basis. Similarly, the more an individual's involvement is integral to the success of the business, the more it would be considered important.
… Individual A will be absent for her entire 2020 taxation year … . As a result, Aco's business will not be an excluded business in respect of Individual A for her 2020 taxation year, as well as for subsequent taxation years in the permanent disability scenario.
That said, [where] the various exclusions, including those respecting an excluded business … do not apply in a particular situation, the underlying logic is that, in such circumstances, the most appropriate test, in determining whether the income from a related business respecting a specified individual should be excluded from the calculation of split income, should be based on the general test as to whether the amount constitutes a "reasonable return" based on the specific criteria applicable in the circumstances, including the work performed, the property contributed, the risks assumed, the total amounts paid or payable and such other factors as may be relevant.