26 June 1995 External T.I. 9503745 - CHILD TAX BENEFIT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

	Whether income generated by a strip bond purchased with 	child tax benefit receipts is taxable in the hands of 	the recipient parent or the child

Position TAKEN:

	If the bond is purchased with clearly identifiable CTB 	funds and the investment is in the name of the child it 	will be taxed in the hands of the child

Reasons FOR POSITION TAKEN:

	While attribution would normally apply in these cases 	there is a legislated exception in subsection 74.1(2) of 	the Act with respect to the use of CTB funds for the 	purchase of investments for a child.

		950374
XXXXXXXXXX	J.A. Szeszycki

June 26, 1995

Dear Sir/Madam:

Re: Child Tax Benefit

This is in reply to your letter of January 31, 1995 concerning the tax treatment of income from the investment of funds from the child tax benefit. We regret the delay in responding to your enquiry.

Specifically, you have contemplated using a portion of the child tax benefit received to purchase, in your child's name, a strip bond coupon that becomes due and payable at some time in the future. As you are likely aware, the child tax benefit itself is a tax-free payment that is usually made to the mother. Normally, when a parent transfers funds to, or invests funds in the name of, a minor child, any income or loss arising from the investment of those funds is attributed back to and taxable in the hands of the parent. The legislated exception to that rule relates to the investment of child tax benefit amounts.

Where the funds from the child tax benefit are deposited in the family's general account, that is, if they become blended with funds from other sources and then used to acquire investments, the income earned on those investments will generally be taxable in the hands of the investing parent(s). Where, however, these child tax benefit amounts are segregated from other funds, for example, in a separate savings account in the name of the child from which account investments are acquired, then the income earned by those investments will be considered as income of, and taxable in the hands of the minor child and not the parent.

We would caution that, in order for the income from the investment to remain taxable in the hands of the minor child, the source of the funds used to purchase the investment must be clearly identifiable as the child tax benefit amounts received.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch