Revised tax on income splitting rules are extraordinarily complex to navigate.
Blue J Legal, a Toronto-based artificial intelligence and technology firm, and Moodys Gartner Tax Law LLP, a national Canadian tax law and advisory firm, are partnering to develop a dynamic machine learning program to address the recently revised tax on split income (TOSI) laws in Canada.
The partners plan on housing the TOSI Navigator as a feature on Blue J Legal’s Canadian Tax Foresight platform, an AI powered tool, available from Thomson Reuters, that analyzes case law to determine how courts and tax authorities may view a particular tax issue. This strategic alliance creates a first of its kind solution to a unique Canadian legal problem.
The partnership between Moodys Garner and Blue J Legal “marks the first advanced machine learning platform to introduce a feature specifically to handle TOSI and reduce complexities,” the firms indicated in the release.
The New TOSI Rules
In 2018, the Canadian government amended the TOSI rules to limit the ability to share income without tax penalties within a family. According to the Department of Finance’s 2017 consultation paper, Tax Planning Using Private Corporations, the new rules “expand the existing tax on split income” with the ultimate goal of restricting income sprinkling in families.
Among several other key changes, the new rules expanded the base of individuals subject to TOSI, which in effect caused TOSI to now apply to children age 18 and over and other related adult individuals (including spouses, common-law partners, grandparents and grandchildren) who are residents of Canada at the end of the year and who receive split income.
The sheer volume of exclusions, however, makes the new TOSI guidelines extremely difficult to navigate for tax professionals.
“The TOSI rules are extraordinarily complex, even compared to the high level of complexity elsewhere in income tax law,” said Benjamin Alarie, CEO and co-founder of Blue J Legal. “The Tax Foresight TOSI solution is unprecedented, and we look forward to helping to eliminate the confusion that surrounds the TOSI rules.”
The TOSI Navigator was designed to be an interactive and streamlined version of Moody Gartner’s Flowcharts. The system works by incorporating case law, alongside Canada Revenue Agency guidance and Tax Foresights dynamic questionnaire prompts, to ensure that the software adequately deals with the user’s particular fact pattern without missing key legislative pitfalls and exclusions.
“Collaborating on this feature was an extremely positive process because of our shared goal – TOSI should be universally understood by all, rather than inhibitive,” said Kim Moody, CEO and Director of Canadian Tax Advisory at Moodys Gartner. “The result is a powerful resource that the leading tax professionals at law and accounting firms nationwide will leverage to remain at the forefront of tax advice.”
About Blue J Legal
Blue J Legal uses machine learning and artificial intelligence to make the law more transparent and accessible. The company’s technology saves users hours of time and offers confident answers in challenging circumstances. While the company’s initial focus is on tax and employment law, the technology is versatile and is being extended to cover other areas of law in the U.S., Canada, and around the world. For more information, visit www.bluejlegal.com.
About Moodys Tax
Moodys Tax is an integrated team of Canadian and US lawyers and accountants through a strategic relationship between Moodys Gartner Tax Law LLP and Moodys Private Client LLP. Moodys Tax provides tax advisory, planning, and cross-border tax and accounting for individuals with personal and business interests on either side of the Canada-US border, no matter where they live in the world. For more information, visit www.moodystax.com.
About the New TOSI Rules
For more information about the new TOSI rules check out this great summary of the complete changes from Ernst & Young here or the Canadian Revenue Agency’s guide on the new TOSI rules here.