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Last summer, a burglar broke into a home in Palo Alto, Calif., shortly after midnight after cutting a screen that covered an open window. The couple who owned the home were awakened by the 17-year-old burglar when he asked if he could have the password to their wi-fi network. There you have it. The priorities of today’s young people are a little different than past generations.

As for my kids, they love their online screen time, but they care more about making money. So, I started explaining the concept of income-splitting to them over dinner (very captivating conversation, I’d like to add) and they bought into the idea of saving taxes as a family. I started this topic last week, and want to share more income-splitting ideas today.

Generate capital gains in the hands of your kids. If you give money to your minor children (including nieces or nephews) or minor grandchildren to invest, any “income from property” (interest, dividends, rents or royalties) will be attributed back to you and taxed in your hands. But capital gains earned on those gifts will face tax in the minor’s hands, where there will likely be little or no tax at all. You could set up an in-trust account with your financial institution to make these investments, or establish a formal trust if the dollars are bigger.

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Transfer any investment income to an adult child. You’ll generally be able to move investment income to the hands of an adult child by simply giving investments to them (count the tax cost of this first; you’ll be deemed to have sold those assets at fair market value when handing them over), or giving your child cash. If the child is an adult, there won’t be attribution of any income back to you. A drawback, of course, is that you no longer control the assets (unless you make the transfer to a trust). If the assets you’re giving are private company shares the rules are different – and mind-bogglingly complex – so speak to a tax pro first.

Give funds to your adult child, then charge room and board. If you like the idea of having investment income taxed in the hands of your adult child, but don’t want to give up the income being earned, consider charging your child room and board to live at home. This will allow you to effectively recover some or all of the dollars being earned by your child.

Pay an allowance to a working child. I’m looking forward to the day when my kids are no longer on the payroll of Mom and Dad. But hold on. If my kids are working, wouldn’t it be good for them to invest the money they’re earning? In this case, there won’t be any attribution back to me of investment income they generate, because they’re investing their own money. So, I could make this possible by paying an allowance to them to help cover entertainment and other costs.

Have the higher-income spouse pay the bills. This may be the simplest income-splitting idea if both you and your spouse are working. If your marginal tax rate is higher than your spouse’s, consider paying for all or most of the household bills. This way, your spouse may be able to use part of his or her income to invest. There won’t be any attribution of investment back to you in this case.

Pay an adult child to babysit your younger kids. If you don’t have cash or investments to simply hand to kids to split income, consider paying an adult child (age 18 or older in the year) to babysit the younger kids (age 16 or under in the year). Babysitting fees, like other child-care costs, may be deductible if they were paid to allow you to earn income. Your adult child will have to report the income, but will pay no tax if his or her total income is under $12,069 (the basic personal amount) in 2019. Plus, your child will accumulate registered retirement savings plan (RRSP) contribution room from this earned income.

Hire an adult child to help in a move. If you’re making a move that entitles you to claim moving expenses, why not pay your adult child to help in the move? You’ll not only keep the money in the family, but you’ll be entitled to a tax deduction for the payment made – subject, of course, to the usual moving expense rules. Your child will have to report the income, but won’t pay tax if their total income is under the basic personal amount of $12,069 in 2019. The payment will also provide your child with RRSP contribution room.

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at tim@ourfamilyoffice.ca.

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