Attribution rules

How the rules work

If you give or lend money or other property to your spouse, the income it earns, such as interest, dividends or rent, is generally taxed in your hands. Taxable capital gains and allowable losses on the property are also attributed to you. A transfer includes one made indirectly, for example through a trust.

For a related minor, meaning a person under 18 who does not deal with you at arm’s length or is your niece or nephew, the income from the property is generally attributed to you for each year before the year the minor turns 18. The CRA’s older bulletin says capital gains on property given to a minor are not attributed back, although certain farm property is an exception and the tax on split income can apply to some gains in other ways.

Common exceptions

The rules do not apply when your spouse pays fair market value and the payment does not come from you. They also do not apply to a loan if interest is charged at a rate at least equal to the lesser of the prescribed rate and a rate that arm’s length parties would agree on, and all of that interest is paid no later than 30 days after the end of each calendar year. A missed payment can end the exemption for that year and later years.

Attribution generally stops after the death of either person, after the spouses separate because of a relationship breakdown (with a joint election needed for capital gains), and for periods when you are not resident in Canada. Business income is treated differently from income from property, so the analysis depends on the facts.

A simple illustration

Suppose you give your spouse $100,000, and they invest it and earn $4,000 of interest in the year. Under the attribution rules that $4,000 is reported on your return. If you instead lend the money at the required interest rate and the interest is paid on time, the investment income can be taxed to your spouse, but the interest they pay you is income to you. These figures are illustrative only.

What to discuss with your accountant

Ask about attribution before you move money or shares between family members, including through a corporation. Bring dates, amounts, any loan agreement, proof of interest paid and where the funds came from.

The CRA can also assess both people for tax tied to the transfer, and there is an anti-avoidance rule where tax reduction is a main reason for a loan. Those details belong in a conversation with your accountant. For related corporate dividend rules, see tax on split income.