I set up an “in trust" account for my son when he was 10 years old. I have been reporting my portion of the annual income generated from the investments in this account in accordance with the attribution rules in our tax law. My son turned 18 in 2011 and I understand that as soon as a child turns 18 all assets in the trust account become his property so that the attribution rules cease to apply. Is this correct?
In addition, I am moving assets from the trust account to my son's own account (since I understand this is my obligation now that he's 18), but I'm doing this slowly because I want to maintain control. (You never know what an 18-year-old might do with all this new-found wealth.) Does this complicate my tax reporting? Should I transfer all assets in the trust account to his trading account?
It sounds as though you have been properly reporting the income from the in-trust account on your tax return. The attribution rules in our tax law do require the transferor-parent to pay the tax on any interest or dividend income earned in these types of accounts. Capital gains earned over the years should not have been reported on your tax return; children can report those capital gains. You are correct that, once a child reaches age 18, the attribution rules cease to apply on those assets and your son can now pay all the tax on the income earned.
Regarding control over the assets: While it is true that the assets are held for the benefit of your son and he could technically choose to take those assets if he wishes once he is 18 years of age, there is no need to move the assets to another account in his name alone – unless he insists on it. You could keep the assets in the existing in trust account and simply report the income on your son’s tax return. This may provide some “moral deterrent” to having your son simply take the money and spend it wherever he wants. In this sense, you may be able to maintain some moral control. By putting the assets into an account in his name alone without him asking for that, you may open the door to those assets being spent more freely. Some more food for thought: Keeping these assets in one account will certainly simplify the accounting and reporting process.
With the tax filing deadline just around the corner, Globe Investor columnist Tim Cestnick has been answering one reader question online each week. Mr. Cestnick is president and CEO of WaterStreet Family Offices and author of 101 Tax Secrets for Canadians.
Please note that Mr. Cestnick will not be answering detailed questions about a person's individual tax returns. Preference will be given to questions with a broader scope.
For stories, videos and tips about taxes, be sure to visit the Globe Investor Tax Centre website for daily updates.