One of the stranger legal ways to split investment income in Canada starts with one spouse lending the other money. Normally, if the higher-income spouse simply gives investment money to the lower-income spouse, the attribution rules pull that income back onto the higher earner's tax return. The CRA does not let a couple move cash across the kitchen table and choose the lower tax bracket. A properly documented prescribed-rate loan can change where the investment income is taxed. The loan has to charge at least the CRA rate in effect when it is made, which is 3% for loans created in the third or fourth quarter of 2026. The borrowing spouse also has to pay the interest by January 30 of the following year. Consider a $100,000 loan that earns $6,000 of investment income during the year. The borrowing spouse pays $3,000 of interest, and the lending spouse reports that interest as income. The remaining investment income is generally taxed to the borrowing spouse, subject to the normal rules for deducting interest. Missing the annual interest deadline can break the strategy for that year and future years. That small detail is why this is something to set up with proper tax and legal advice, rather than copy from a social media post. To me, the useful lesson is how exact Canadian tax rules can be. The same family money can produce a different result because the loan was documented, priced and paid correctly. Have you ever heard of a prescribed-rate loan before?
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13 Comments
Clantosa @clantosa · 2d
There's so many odd things no one knows about. Only with the help of a tax professional would someone figure this out
Le Corb@lecorb · 1d
@smallbird.financial these posts are gems. A request to write a post on borrowing from an LOC to invest in income producing stocks in a taxable account to record and write off interest expenses legitimately so that the CRA audit risk is mitigated. Also in addition to the above how to legitimately record and track ACB in the event of a CRA audit. How many decimal places is required? Most banks record up to four. Wealthsimple records two. When the numbers get large this does make a difference. Best regards, thanks 🙏
Bradley @bradleytalksmoney · 2d
Spousal RRSP plans are simpler if the arbitrage gap is there. Simply deposit a large sum at the higher tax bracket, wait the attribution period, pull it out at the lower bracket. In effect it moves the higher spouses income to the lower spouses income bracket. This strategy is incredible if the second spouse is unemployed.
Mystic Michael@mystic_mike · 2dEdited
Are you saying if I wait the 3 year attribution period any money withdrawn by my wife will still be taxed at my rate? Or is this just a way to do it more efficiently
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