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Funding Your Child’s Post-Secondary Education


Gregory Clarke on October 13, 2010 in Registered Education Savings Plan

It’s that time of the year again. School has started again and you’ve written that big cheque to help support your child’s education. We all know that post-secondary education is important in today’s world but it is also extremely expensive. As parents, we want to support our children’s future and usually that tends to be by providing financial assistance. The problem is if you are using personal funds to provide that assistance, it may not be the most tax efficient method. Let’s look at an example: If you are providing $15,000 to your child per year for school and other related expenses, you need to earn $28,000 in before tax dollars to fund that payment.

But is there a better way? Maybe.

If your situation allows it, you may be able to introduce a family trust into your corporate structure. The family trust allows you to split dividend income paid from your corporation out to your children without actually providing them shares in your corporation and ensures that you retain control. Since children in school tend to have fairly small annual incomes resulting from summer employment or a part-time job, a fairly significant allocation can be paid to them without any tax effect. For example, a child with no income could receive an allocation of up to $35,000 without paying any tax. That’s a savings of $16,300. If the child did have an income, then the allocation without paying any tax would just be reduced accordingly.

There is a catch though! The child receiving the allocation must be 18 or older otherwise the allocation is attributed back to the parent and taxed in their hands thereby eliminating any possible benefit. So before you sign that next big cheque, consider your situation and talk to your SB advisor to see if a family trust would be beneficial to you.