Weekly Tax Tips
Understanding Trusts
6 Nov 2009
Family trusts have received quite a bit of attention from our politicians over the years. You may remember the Bloc Quebecois attacking trusts as a “tax-shelter for the rich.” After that, the Auditor General criticized Revenue Canada (now the Canada Revenue Agency or CRA) for allowing gains on assets held in two trusts of a wealthy Canadian family to escape Canadian tax. In the 1999 Federal Budget, the tax on split income (or kiddie tax) was introduced, and in December 2002, these rules were tightened. As trusts are often used to hold investments for minors, the kiddie tax has a major impact on trust management.
Despite all the attention that trusts have received, it is important to keep in mind that they are not tax shelters. What they offer is greater flexibility in tax and financial planning. And you don’t have to be rich to enjoy the benefits of a trust — most Canadian trusts earn very little income.
To find out more about trusts, read our tax bulletin titled Understanding Trusts. In this bulletin we explain what trusts are and how you might be able to use them to achieve your tax and financial goals. Armed with this information, you'll be better able to assess whether using a trust can make sense for you. We also discuss when the kiddie tax applies, and more importantly, where it doesn't.
This tax tip is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 6 Nov 2009.
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