Can You Still Pay Your Kids Dividends While They Are in University?

The December 13, 2017 “clarification” to the July 18, 2017 income splitting proposals may raise more questions than it answers. This tip is about a situation that appears clear where income splitting is no longer possible.
One of the most effective income splitting we used to have was the ability to pay dividends to children while they were in university or other post-secondary schools. This was normally accomplished with a family trust. The dividends were paid from the operating business to the family’s trust and then distributed to the kids. This is a help to the business owner who is no doubt paying for the kids education. The kid had little income so the dividends did not create much taxable income.
This is over as of the beginning of 2018.
To pay a dividend to a child between the ages of 18 and 24, the child must be working a minimum of 20 hours a week in the business, or have worked 20 hours a week for five years in the past. This is unlikely for kids who are between the ages of 18 and 24 as they are in school and it is not really income splitting if the child is working full time in the business.
Check with your own advisors, but if you are paying a kid dividends from a family trust, the kid is not active in the business and is between the ages of 18 and 24, you are likely out of luck for income splitting with dividends.

No comments yet.

Leave a Reply

Painless Financial Training Group Inc. with Debi Peverill

Understand Financial Stuff, Painlessly