A non-voting dividend-sprinkling class that cannot meet the TOSI excluded-shares test

What the check looks for

A dividend-sprinkling class only works if an exclusion from the tax on split income applies. The "excluded shares" exclusion is generally closed to a PREC on two independent grounds: it requires shares carrying at least 10% of the votes AND value, which a non-voting class can never meet, and it is available only where LESS than 90% of the corporation's business income for the year comes from providing services. Most PRECs earn all or nearly all of their income from the shareholder's services, so for most PRECs that test fails as well, whatever the shares carry.

Authority: ITA s. 120.4 (tax on split income)

The Income Tax Act sets no requirements for the articles; this is a tax consideration that can follow from how they are drafted.

What good looks like

None of the share classes uses the precedent wording that lets dividends be declared on one class to the exclusion of the others. That is all this check grades. A non-voting class whose dividends the directors declare separately, such as a Class D non-voting common share, still carries tax-on-split-income exposure: a dividend on it to a family member is taxed at the top rate unless an exclusion applies, and the "excluded shares" exclusion is not available on a non-voting class, and is generally not available to a PREC in any event. Confirm an exclusion applies before any such dividend is declared.