Steve gifted shares in a public corporation to his fifteen-year-old son, Simon. The ACB of the shares was $10,000. During the year, Simon received $500 in dividends from the shares. Simon then sold the shares for $12,000. Which of the following is true for Steve and Simon?

Question

Quizplus · Accepted Answer

Steve gifted the shares to Simon, so Simon is considered the legal owner of the shares and will have to report any dividends and capital gains on his tax return. As Simon is a minor, he is subject to the kiddie tax rules, which means that if his total income (including dividends and capital gains) exceeds a certain threshold ($12,200 in 2019), some of the income will be taxed at his parent's marginal tax rate.

However, Steve will also have to report the dividends on his tax return as he gifted the shares to Simon, but he will not have to recognize the capital gain since he is not the legal owner of the shares anymore. This is known as the attribution rule, which requires parents to include income from property transferred to a child under 18 years of age on their income tax return.

Steve Gifted Shares in a Public Corporation to His Fifteen-Year-Old