Income Attribution Rules: Loans and Transfers

Written By Passion Works Digital
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Spouse

If property is transferred from a taxpayer to his/her spouse it will result in:

  • any income or loss from the property will be attributed to the taxpayer; and

  • any net taxable capital gain or allowable capital loss resulting from the disposition of the property will be attributed to the taxpayer.

Attribution does not apply to property that is transferred for its fair market value. The taxpayer may loan his/her spouse money for the transfer purchase but the loan has to meet certain criteria in order to avoid attribution:

  • a written agreement must be developed that highlights the specifics of the repayment of the loan

  • the borrowing spouse must pay an interest rate greater than, or equal to the lesser of:

    • the prescribed rate of interest

    • a rate that is reasonable for parties dealing at arm's length

  • the borrowing spouse must make a loan interest payment no later than 30 days after the taxation year. 

If interest is not paid back during the proper time, any income earned during the year and all future income will be attributed to the taxpayer.

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