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April 16, 2024

Tax Tips

Attribution Rules - Spousal Loans
Subject: Attribution - Spousal Loans
Number: 07-01
Date: 1/19/2007
Attribution can be avoided on spousal loans in certain situations

When an individual loans funds to a spouse, any income earned on those funds would normally be attributed back to the individual. If, however, the spouse has paid interest at the prescribed rate at the time the loan was given before January 30 of the following year, there is no attribution.

Attribution will also not apply to income or gains or losses attributable to a period:

  1. Following the death of the transferor or transferee;

  2. Throughout which the transferor is not resident in Canada; or

  3. After the transferee ceases to be the transferor’s spouse or common-law partner.

Where there has been a marital breakdown but there is not yet a divorce, the separated couple can jointly elect not to have the attribution rules apply. Without this election, the attribution rules continue to apply. Once the election has been made, a separate election does not have to be made each subsequent year while the situation remains the same.

In those situations when an individual has transferred property to a spouse and an election was made to have the transfer occur at fair market value, there is no attribution on the assets received by the spouse. However, this would not apply when the asset transferred is cash.

When there is a change of marital status, all loans and transfers should be reviewed to analyze the attribution implications.

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