Exception for Split Income of a Beneficiary Who Is a Minor
Notwithstanding how the income attribution rule applies to a trust of which the beneficiary is a spouse or a minor and a revocable or blind trust, if a trust allocates certain types of income (called “split income”) to a beneficiary who is a minor, it is the minor, not the transferor, who must report the income.
The beneficiary who is a minor must pay a special income tax on this income, calculated at the highest marginal rate using form TP-766.3.4-V, Income Tax on Split Income. In some cases, the father or mother is solidarily liable, with the minor, for ensuring the payment of this income tax.
The split income must be entered on the minor's RL-16 slip and certain codes must be entered in the blank boxes. See the Guide to Filing the RL-16 Slip: Trust Income (RL-16.G-V) for instructions for the following boxes:
- box A – Canadian and foreign capital gains
- box E – Foreign business income
- box F – Foreign investment income
- box G – Canadian business or property income
- box I – Taxable amount of eligible dividends and ordinary dividends
Split income cannot be designated under the Income Tax Act (federal statute). Split income must be included in the calculation of the minor's income. The amount can subsequently be deducted from the minor's taxable income on line 295 of the minor's income tax return, for the purpose of calculating the tax on split income (line 443 of the return).
However, a beneficiary who is a minor does not have to report the split income for the taxation year in which the split income is earned by the trust where:
- the minor was not resident in Canada throughout the taxation year;
- the minor's father and mother were not resident in Canada at any time during the taxation year; or
- the income was allocated to the minor because of the death of:
- his or her father or mother, or
- another person, if, for the taxation year, the minor was a full-time student at a post-secondary educational institution, or a tax credit for severe and prolonged impairment in mental or physical functions could be claimed with regard to the minor.
For information on how the income attribution rule could apply to the transferor, see Trust of Which the Beneficiary Is the Spouse or a Minor and Revocable or Blind Trust.