It is still Valentine’s Day. Let’s continue the topic on split income. You might have heard about spousal loan as a split income strategy. Here is an article by Turbo Tax.
One key thing to know is the attribution rule. For example, a higher income earner gift $1000 to his or her spouse. The interest, dividend or capital gain earned from this gift is still counted as the gifting spouse’s income when filing tax return. However, if this $1000 is a loan, the income generated from this $1000 count as the receiving spouse’s. The key is that the receiving spouse need to pay interest for this loan. The interest is at least as much as CRA’s prescribed rate.
Wow, sounds very complicated though. It needs to be documented clearly. The receiving spouse should pas the interest every year or within 30 days of the end of the year. Here is the CRA webpage on this.
However, there are quite a few scenarios that can complicate things such as death of a spouse or relationship breakdown. See more details here. Yes, those are extreme situation, but I still have reservations about using spousal loans because it is a bit complicated to execute.
I can’t help but wonder if CRA created this attribution rule of spousal gifting, why allow this spousal loan anyway?
Moreover, joint investment margin account is the same. Tax return filing apps usually ask what percentage of the account value belong to each spouse. That is the same purpose to attribute income generated from this joint margin account to the right spouse. I know some people would want to use spousal loan for this too.
Call me lazy on this. I usually stay away from complicated things. I prefer to keep it simple to avoid mistakes or troubles.
Spousal loan to split income?
It is still Valentine’s Day. Let’s continue the topic on split income. You might have heard about spousal loan as a split income strategy. Here is an article by Turbo Tax.
One key thing to know is the attribution rule. For example, a higher income earner gift $1000 to his or her spouse. The interest, dividend or capital gain earned from this gift is still counted as the gifting spouse’s income when filing tax return. However, if this $1000 is a loan, the income generated from this $1000 count as the receiving spouse’s. The key is that the receiving spouse need to pay interest for this loan. The interest is at least as much as CRA’s prescribed rate.
Wow, sounds very complicated though. It needs to be documented clearly. The receiving spouse should pas the interest every year or within 30 days of the end of the year. Here is the CRA webpage on this.
However, there are quite a few scenarios that can complicate things such as death of a spouse or relationship breakdown. See more details here. Yes, those are extreme situation, but I still have reservations about using spousal loans because it is a bit complicated to execute.
I can’t help but wonder if CRA created this attribution rule of spousal gifting, why allow this spousal loan anyway?
Moreover, joint investment margin account is the same. Tax return filing apps usually ask what percentage of the account value belong to each spouse. That is the same purpose to attribute income generated from this joint margin account to the right spouse. I know some people would want to use spousal loan for this too.
Call me lazy on this. I usually stay away from complicated things. I prefer to keep it simple to avoid mistakes or troubles.
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