Split income of a child under
18
Certain income of a child who was born in 1999 or later is not subject to the rules discussed under "Loans and transfers of property" in the previous section. A special tax of 33% applies to the following amounts received directly or through a trust (other than a mutual fund trust) or partnership:
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shareholder benefits relating to shares not listed on a designated stock exchange; and
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dividends from shares (not including those in a mutual fund corporation or listed on a designated stock exchange).
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Note
A child under 18 years of age may be subject to the tax on split income for dividends on shares of a corporation.
Any taxable capital gain from the disposition of those shares to a person who does not deal at arm's length with the child will be deemed to be a dividend. This deemed dividend is subject to the tax on split income and is considered to be an "other than eligible dividend" for the purposes of the dividend tax credit.
The above also applies to income from a trust (other than a mutual fund trust) or partnership for providing property or services to (or in support of) a business operated by:
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someone related to the child at any time in the year;
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a corporation that has a specified shareholder who is related to the child at any time in the year; or
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a professional corporation that has a shareholder who is related to the child at any time in the year.
The special tax also applies to the income of a child from a partnership or trust (other than a mutual fund trust), that is derived from a business or rental property of a partnership or trust if a person who was related to the child at any time in the year:
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is actively engaged on a regular basis in the activity of the partnership or trust of earning that income; or
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in the case where the income is from a partnership, has an interest in the partnership directly or indirectly through other partnerships.
The special tax does not apply if:
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the income is from property the child inherits from a parent;
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the income is from property the child inherits from anyone else and, during the year, he or she is enrolled full-time in a post-secondary institution or is eligible for the disability tax credit (see line 316);
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the child was a non-resident of Canada at any time in the year; or
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neither of the child's parents was a resident of Canada at any time in the year.
How to report this income
The child must report the income on the appropriate lines of his or her return and can claim a deduction on line 232.
The special tax is included in the calculation of his or her federal and provincial or territorial taxes. To calculate this tax, complete Form T1206, Tax on Split Income. Attach the form to the child's paper return.
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