Payments to Minors from Separate Trusts

The Income Tax Act says that if a minor (someone under 16) derives income from a trust that was set up by a relative or guardian, the trustee must pay tax on it at 33%.  The benefiit of a child's tax rate may therefore be lost because of this rule.

There is a de-minimus exemption to this rule so that if the amount of the income paid out of the trust is less than $1,000, the rule does not apply.  There was some uncertainty however over whether this was a "per beneficiary per trust" or a "per minor child" de-minimus.

The I.R.D. have now confirmed that it is a per trust de-minimus exemption.  Although this means that a child can now receive $1,000 from a number of trusts, if the I.R.D. perceive that the only purpose of creating multiple trusts is to take advantage of this rule, then they may consider applying the anti-avoidance rules to reverse the tax advantage.