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A family trust can be used to implement a prescribed rate loan . income-splitting strategy to help reduce a family’s tax burden. This arrangement is typically beneficial for families where one member has significantly more taxable income than the other family members. This article outlines the basics of using a
- Using a Family Trust for Prescribed Rate Loan Arrangements
article titled “Modifying a Prescribed Rate Loan”....
- Using a Family Trust for Prescribed Rate Loan Arrangements
- Using a Family Trust for Prescribed Rate Loan Arrangements
- Using a family trust
- Prescribed rate loan
- Potential tax savings
- Modifying an interest-free loan or existing prescribed rate loan
- Implementing a prescribed rate loan strategy using a family trust
A low prescribed rate can provide tax saving opportunities for you and your family. With the Canada Revenue Agency (CRA) prescribed rate at a historical low, now is an excellent time to consider tax saving opportunities for you and your family. A family trust structure can be used to implement a prescribed rate loan income-splitting strategy to hel...
If structured properly, a family trust is a trust structure that allows a parent or grandparent to split income with their low-income family members. The strategy is to shift investment income and capital gains that would otherwise be taxed in your hands at a high marginal tax rate to the hands of your low-income spouse, children, nieces/ nephews a...
A prescribed rate loan is created when investment capital is loaned by a high-income family member (the lender) to a low-income family member or family trust (the borrower) using a formal written loan agreement. In order for this loan strategy to work, the interest rate on the loan must be at least equal to the CRA’s prescribed rate in effect at th...
The table below illustrates the potential tax savings that may be realized if a parent makes a prescribed rate loan at 1% to a properly structured family trust, compared to investing the portfolio directly or making an interest-free loan to a family trust.
If you have an existing interest-free loan or prescribed rate loan at a higher interest rate, you may want to consider repaying your current loan and making a new loan to take advantage of the lower 1% prescribed rate. While it is possible to repay the current loan and establish a new loan using the current CRA prescribed rate, there are some consi...
RBC offers a family trust solution which can be used to implement a prescribed rate loan strategy. The RBC Family Trust can be used to fund your children’s education and expenses while providing a mechanism for income splitting. Speak to your RBC advisor for more information on family income-splitting strategies or if you would like to consider a f...
prescribed rate currently at only 1%, the family trust can more effectively be funded using a prescribed rate loan. This allows for a much broader range of investment strategies that may be used while still achieving tax efficiency.
A prescribed rate loan would generally have the following features: Be evidenced in writing by either a loan agreement or a promissory note; Provide the names of the borrower and lender; Stipulate the amount loaned (principal); Stipulate the interest rate charged (generally, the lowest rate that can be used for the prescribed rate loan is the ...
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Oct 12, 2022 · Using a family trust to implement a prescribed rate loan. A family trust can be also be used to implement a prescribed rate loan. This type of income-splitting plan allows a loan to be made to the trust where interest is paid at a prescribed rate of interest to the lender annually.
earner's hands, the overall tax paid by the family may be reduced. Prescribed rate loans can also be used to help fund minor children’s expenses, such as paying for private school and extracurricular activities, by making a prescribed rate loan to a family trust with the minor children as beneficiaries. The “attribution rules” in the
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Restructuring Prescribed Rate Loans. If you have already set up a family trust with a prescribed rate loan for income-splitting purposes, it might be time to revisit this arrangement if the interest rate on the loan is greater than the prescribed rate currently in effect. Doing so may increase the income tax savings in your current situation.
