One of my clients asked me a question I think many who aren’t tax experts may think is logical: “I make $150K per year, and my husband is in school, so has no salary. Can I put all our properties in my husband’s name so we can save taxes?” Essentially, she wanted to make a plan for moving property to the low-income spouse with the idea that she could generate a lot of tax savings. But, this is definitely something I do not recommend.
Sounds good…but not really
On a fairly regular basis, we get questions like this from a husband or wife saying they want to put all the properties in their spouse’s name because the spouse doesn’t make any money, while they have a high salary. Seems like a great way to save taxes right? Not so fast!
While this sounds like a really great idea, the Canada Revenue Agency is not as keen. The Income Tax Act contains a series of rules known as “attribution rules”. These rules are intended to stop people from creating a tax benefit by shifting income or capital gains from the high income earning taxpayer, to the lower income earning, lower taxed spouse, or in some cases, another non-arm’s lengths person.
Attribution rules and moving property to low-income spouse
In the case of real estate (or any revenue-producing property), if the property itself or the money which is used to acquire the property, is transferred or loaned to a spouse, any income and/or capital gains from the property will normally be attributed back to the transferor.
In a more dramatic example, if one spouse earns $200K per year and the other earns nothing, the CRA will be less than impressed if you say the property is owned 50/50 or even 100% for the low income spouse. Now, this may still be alright if the lower income spouse used to work or received an inheritance, but otherwise, CRA may come knocking.
Property income vs business income vs loans
The attribution rules apply only to property income, not to business income earned from money or business assets transferred. As well, the attribution rules do not apply to loans where interest is charged at a rate at least equivalent to the prescribed rate of interest as per the CRA. This means that as the higher income earner, you will collect interest payments from your spouse (from their own resources, of course) and this income would be taxed in your hands on your personal tax return. Your spouse would then be able to deduct the interest payments from the revenues earned from the property.
Attributions have many, many technical rules and exceptions. Proceed with caution!
Resources
For additional resources related to moving property to a low-income spouse, see:
More questions?
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
