Family Trust question

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arbutus
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Family Trust question

Post by arbutus »

Hi everyone!

I have a question about family trusts. We are considering setting up a structure with our opco owned by a family trust. The idea is that we will be able to use capital gains from the trust to pay for the kids' school fees etc, in a tax-efficient way.

Our opco holds significant retained earnings which are currently invested. Our idea is that we would sell those securities and transfer the funds to the family trust. Once in the family trust, the funds would be invested.

Due to attribution rules, any interest income or dividends generated in the family trust will be taxed in our hands (bad news). However, any capital gains that are paid out to the kids will be taxed in their hands (good news!). So we want to generate capital gains only, if possible.

How can we do this? I'm comfortable with swap-based ETFs like HXT and HXS. We could have our family trust invest in these, then liquidate the portfolio once a year to generate capital gains. Those capital gains would then be paid out to our kids. The only downside would be transaction costs (minimal). As far as I know, we could buy the securities back the same day - we would just need to be conscious of the superficial loss rule. Then, 1 year later, we do exactly the same to generate some more capital gains.

Does that all make sense? I will be speaking to my accountant and a lawyer about it. But I just want to make sure I have it right in my head first.

Thanks in advance for any thoughts!
mcu99
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Re: Family Trust question

Post by mcu99 »

Ever get this setup? Looking for same but wondering if worth the hassle
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