Family Trusts - Down But Not Out

Recent changes to the Income Tax Act have caused many people to conclude that family trusts are no longer useful planning vehicles. Don't be quick to jump to this conclusion. There are still many reasons to use family trusts.

In the past, the existence of a family trust as a shareholder of a corporation meant that dividends could be paid to the family trust and taxed in the hands of minor children. If the child had no other income, the child could receive up to $24,000 per annum without tax. Unfortunately for years after 1999, there will no longer be any benefit to having dividends from private corporations tax in the hands of minor children. With the introduction of the income splitting tax or "Kiddie Tax" as it has come to be called, these dividends will be taxed at the top marginal rate except in certain specific situations.