Quote:
Originally Posted by Reggie28
Does anyone here have experience with prescribed loans?
With a prescribed loan you can set up an investment account for a child, funded by a loan from the parent. The current rate is 1% (Bank of Canada rate rounded up). $100 per year for every 10k borrowed. The child then invests the money, makes a return and files income tax. Your 1 year old now has income, dividends and possibly capital gains to report.
I would like to do this for my nieces and nephew. Anyone else doing something like this?
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One thing you need to do (my experience is with spousal loans) is physically have them pay you the interest on the loans. So at the end of each year they must pay you the 1%. You then must claim the 1% as taxable income. Since the child doesn’t have income you would have to sell a portion of the investment each year to pay the interest which would trigger capital gains.