Dividend Income from the in-trust account of my daughter

RaOne1 wrote: ↑ My daugher is in highschool and had earned a few thousand dollars by working last summer. As she was not eligible to open a stock account, I opened an in-trust account for her with CIBC Investors Edge. I had explained them the situation.

The tax bill for her dividend income, however, has to come to me with my SIN number on it as I am the guardian for the account. This was not I wanted it to be.

Is that correct?
How can I fix this problem in the future?

Thanks

Thanks

I believe this is correct. These "in trust" accounts set up in a brokerage or a bank are what is referred to as "informal in trust accounts." You are the owner of the account, and it is your choice to modify the account to revert to you. Otherwise, people would just set up informal ITF accounts to split the tax burden. If you want the tax to be reported in your daughter's name, you should need to either (a) add her name to the account and have her report 99% of the income on her income tax return, with you reporting 1% or (b) establish a formal trust account.

You could also set up an RESP in your daughter's name, too, though this would limit how she can spend the money (i.e., on her education), else it would be returned to you as a taxable withdrawal.

Edit: Further to the above...it may be possible to have your daughter take over the informal trust account upon her turning age 18 or 19 (age of majority in your province of residence), but I suspect because of the fact that she is a minor child, it is impossible, in an informal trust situation, for her to report the income under her SIN. See the Advisor article https://www.advisor.ca/columnists_/caro ... dont-work/.

Also, because you are her mother, the CRA deems you to be not arm's length, and thus are disallowed from reporting the income under your daughter's name. See the article for more and, specifically, Section 75, subsection 2, of the Income Tax Act at the laws.justice.gc.ca website. CIBC Investor's Edge likely saw this and, in your best interest, disallowed your daughter from claiming the income, knowing the CRA would almost certainly disallow you from reporting the income under her name and subject you to back taxes later.

Cheers,
Doug

Thank you.

All the websites about informal trusts talk about the case when someone gifts money to the child. Anyone know of any information about how a minor can invest their own employment income? Is an informal trust the right way to handle this? Can an informal trust have the same person (the child) as both the settlor (source of funds) and beneficiary?

bubak wrote: ↑ All the websites about informal trusts talk about the case when someone gifts money to the child. Anyone know of any information about how a minor can invest their own employment income? Is an informal trust the right way to handle this? Can an informal trust have the same person (the child) as both the settlor (source of funds) and beneficiary?

@bubak Not sure exactly, but the advice @RaOne1 received is that her daughter was ineligible to open a sole account. It seems like an informal trust account is out of the question. I would go with a joint account with the child, and have the child report 99-100% of the income—and the gains and losses.

When "of age," parent and child can fill out & sign a change of ownership form to make the account in the adult child's name alone.

Cheers,
Doug