BUSINESS TRUST

BACKGROUND

The Department of Finance introduced changes that affected a taxpayer's ability to income split through a family trust in its 1999 federal budget. The new rules began in the year 2000.

Section 120.4 introduces a special 29% tax applicable to certain passive income of individuals under the age 18 years. Generally, the types of income which are taxed under this new measure are:

Taxable dividends and other shareholder benefits on unlisted shares of Canadian and foreign companies (received directly or through a trust or partnership); and,

Income from a partnership or trust where the income is derived by the partnership or trust for the business of providing goods or services to a business carried on by a relative of the child or in which the relative participates.

Interestingly, the new rules offer a tax planning opportunity for those individuals who are consultants (i.e. independent contractors). These new rules do not apply to a business trust that provides goods or services to a business carried on by a corporation of which a person who is related to the minor is not a specified shareholder (a defined term under the Income Tax Act and otherwise known as the 10% rule).

For more information on our corporation and our products, please contact:
R. Paul Jacobson, Q.C. Director
The Fiscal Planning Corporation
Suite 2600, 144 - 4th Avenue S.W., Calgary, Alberta, Canada T2P 3N4
Telephone: (403) 210-0278
email: jake@fiscalplanning.com