Although, where an individual is subject to the tax on split income (“TOSI”) under s. 120.4(2) for a particular year, and the amount of split income is also included in the individual’s income under Division B of Part I, double taxation is avoided pursuant to s. 20(1)(ww), which provides a deduction, in computing an individual’s income from a business or property, for an amount equal to that of the individual’s split income. Where an individual recognizes a capital gain of $200,000 in the year, with the $100,000 taxable capital gain being included in the individual’s split income, and the individual realized a capital loss of $200,000 in the same taxation year from an unrelated transaction, would the individual be able to claim an s. 20(1)(ww) deduction for the taxable capital gain included in split income?
In confirming the availability of the deduction, CRA noted that the Department of Finance explanatory notes indicate that the purpose of paragraph (ww) is to ensure that individual’s split income is excluded from the individual’s income that is otherwise subject to tax. Accordingly, in the circumstances described, CRA would not challenge the deduction under paragraph (ww) for any portion of an individual’s split income that relates to the taxable capital gain.