Income Splitting Trusts - CRAs Prescribed Interest Rate Expected to Increase July 1, 2022.

The Canada Revenue Agency’s prescribed rate loan is expected to increase from 1% to 2% on July 1, 2022. If you already have an income-splitting trust, you may consider making an additional prescribed interest rate loan before July 1 2022 so you can “lock-in” the 1% rate; otherwise, time still remains to establish an income splitting trust before the deadline.

Here is how this tax planning strategy works. If you are a high income-earner and have minor children (or grandchildren) in private school or with other significant expenses (e.g. summer camp, extra-curricular activities), you can “divert” income to a trust in order to pay for these expenses in a more tax-efficient manner. While the Income Tax Act contains attribution rules which typically do not allow you to split income with your minor children, an exception is made where the trust is funded by a prescribed interest rate loan.