Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
whether grandparent must report interest income earned on "Children's Bonus Bonds" issued by a U.K financial institution and which are purchased for grandchildren
Position TAKEN:
for minor grandchildren, yes.
Reasons FOR POSITION TAKEN:
Position reflected in it-510
XXXXXXXXXX 941530
Sandra Short
August 25, 1994
Dear Madam:
Re: Interest income earned on Children's Bonus Bonds
This is in reply to your correspondence of June 6, 1994 which queries whether you must report interest income earned on "Children's Bonus Bonds" issued by British National Savings (we assume in the United Kingdom) to be purchased by you for your grandchildren. You provided the following information as it relates to the bond purchase:
1.Minimum investment is L25 with a maximum of L1,000.
2.Bonds may be purchased for any child under the age of 16 years.
3.Bonds are sent to the parent or guardian of the child. The parent or guardian will have control of the bonds until the child turns 16 years of age.
4.If the bonds are cashed by the parent or guardian before the child is 16 years old, all monies belong to the child.
5.Bonds held for 5 years receive a bonus on the 5th anniversary and every 5th year thereafter and interest compounds annually.
6.All returns of income - interest and bonus - is exempt from U.K. tax and capital gains tax.
7.Bonds may be held until the child reaches age 21 years when redemption will be non-taxable.
The attribution rules found in the Income Tax Act will deem any income earned on the bonds by each grandchild to be your income for any year in which the grandchild is under 18 years of age. You are required to report this income even though the bonds may be sent to the children's parents, you will not receive any interest income directly and you cannot cash the bonds.
We have enclosed a copy of Interpretation Bulletin IT-510 entitled "Transfers and Loans of Property made after May 22, 1985 to a Related Minor" which may be of assistance to you. As discussed in paragraph 1 of the Interpretation Bulletin, a related minor includes a person who is under 18 years of age and who does not deal with an individual at arm's length. The Income Tax Act deems related persons not to deal with each other at arm's length regardless of the possibility that they may, in fact, conduct their mutual transactions on that basis. Further, the Act defines related persons to include individuals connected by blood relationship, marriage or adoption. As stated in paragraph 2 of the Bulletin, where an individual has transferred property (which by definition includes gifted bonds or money) to a related minor, any income or loss from the property or any property substituted therefor is deemed to be income or loss of the individual for a taxation year unless the minor has attained the age of 18 years before the end of the year.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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