Settlement Code

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A set of statutory provisions under which income arising from property that has been gifted is taxed as if it were income of the donor and not of the donee. Broadly, the provisions apply whenever there is a gift and the circumstances are such that it is possible for either income or capital to pass back to the donor at a later date. They thus apply to an outright gift, as well as to a gift into trust. The Settlement Code is designed for three purposes. The first is to attempt to ensure that a trust cannot be used as a piggy bank, in which income can be taxed at a lower rate than that which applies to the settlor, but is then passed back to the settlor. The second is to restrict income-splitting opportunities within the family between parents and minor children. The third is to restrict the possibility of income being assigned to a person subject to a lower rate of tax.

Subjects: Law — Accounting.

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