Don’t Forget About ATED! It is April once again, which these days as well as…
Q: I understand that savings income arising to children from cash provided by their parents will be taxed on the parents. Do the same rules apply to other income-producing assets?
A: Very probably. The basic rule is that income arising under a settlement is treated as the parent’s income for tax purposes if it is paid to or benefits his or her unmarried child (including step-children). For this purpose a settlement is very widely defined to include not only trusts but also agreements, arrangements and transfers of assets.
Decided case law provides a useful example. Two brothers formed a company and arranged for shares to be allotted to their children. The company acquired and developed some property and profits were distributed to the children by way of dividend.
The Courts decided that this series of events constituted arrangements which in turn constituted a settlement for income tax purposes and so the resulting income was assessable on the parents.
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