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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: The issue is whether the income distributed by a trust to a child will be subject to the kiddie tax under section 120.4 of the Act. The trust, in question will be created for the purpose of earning money to cover medical expenses of the child. The trust will be the sole proprietor of a retail business that will raise funds for the trust through the sale of XXXXXXXXXX and other items. The grandfather, as trustee, will provide operating services to the trust for no remuneration.
Position: Income earned by the trust will not be subject to the kiddie tax.
Reasons: The income earned by the trust will not be split income as defined in section 120.4 of the Act.
XXXXXXXXXX 2002-016096
Shaun Harkin, CMA
December 12, 2002
Dear Sir:
Re: Section 120.4 of the Income Tax Act (the 'Act")
This is in reply to your letter of September 3, 2002 wherein you asked about the application of section 120.4 of the Income Tax Act (the "Act") to the income distributed by a trust created to earn money to cover various medical expenses of a child (the "beneficiary"). The trust will carry on a business of selling XXXXXXXXXX and other items. The beneficiary's grandfather will provide his services to the trust for no remuneration. We assume, for the purpose of this letter, that the trust will not earn any income from the provision of services to or in support of a business owned or carried on by a person related to the beneficiary or a corporation described in subclause 120.4(1)(c)(ii)(C)(II) or (III) of the definition of "split income" in subsection 120.4(1) of the Act.
Section 120.4 of the Act imposes a special tax, known as the "kiddie tax" on the split income of specified individuals. A specified individual is an individual who is under 18 years of age at the end of the year, who was resident in Canada throughout the year, and who had a parent who was resident in Canada at any time during the year. Split income includes:
? income derived from the provision of goods or services by a partnership or trust to or in support of a business carried on by:
? a person related to the specified individual at any time during the taxation year,
? a corporation of which a person related to the specified individual owns directly or indirectly, at any time in the taxation year 10% or more of the shares of any class of the corporation or related corporation, or
? a professional corporation (defined as a corporation that carries on the professional practice of an accountant, lawyer, dentist, medical doctor, veterinarian or chiropractor) of which a person related to the specified individual is a shareholder at any time in the year.
Based on the facts provided to us, we are of the view that the income earned by the trust from selling XXXXXXXXXX and other items would not be derived from any of the sources described above and, as a result, would not be considered split income.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.
We trust the above comments are of assistance.
Yours truly,
Daryl Boychuk, LL.B
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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