Fruit and tree doctrine

Fruit and Tree Doctrine The Fruit and Tree Doctrine is a legal and tax principle that establishes the relationship between income (the fruit) and the source of that income (the tree). According to this doctrine, income is taxed to the person or entity that owns or controls the source that produces it, ensuring that tax liability follows the ownership of the income-generating asset. This doctrine prevents taxpayers from artificially transferring income to another person or entity (for example, a family member) to reduce their tax burden, while still retaining ownership or control of the underlying asset. It helps maintain fairness and consistency in taxation.

Example: If a parent owns a rental property but transfers the right to receive rent to their child while retaining ownership of the property, the rental income (fruit) is still taxable to the parent (tree) — the true owner of the income source