Perhaps someone out there may be able to help me with this scenario:
Spouse A makes 100K. Spouse B makes $35K.
Spouse A has a Dividend Income slip (T5) for $7K. Spouse B has a Dividend Income slip (T5) for $2K.
Can Spouse A shift this income to Spouse B to take advantage of the tax saving?
Any help is appreciated.
First, a disclaimer: I'm not a tax professional and please consider this as FYI only and do your own DD.Originally Posted by ctyghe
The short answer is no. But what you can do in the future is have two separate bank accounts. Spouse A's salary goes into account A and Spouse B's into account B. Spouse A pays for all household expenses from account A and spouse B does the investing. That way, slowly over time, spouse B, who has the lower income gets investment income taxed in his/her hands.
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I wish I could implement a similar strategy CC but I can't. My fiance is a teacher and we know how much she'll be making in the next 5 years. Me, I'm in IT. I might not always be making the same amount of money and could even be making less. I figure we'll probably be making the same in the near future so it isn't worth while to making our lives complicated.
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I wish I had more experience. I as well am not a tax professional, but I believe that you can loan money to your spouse at the CRA's prescribed interest rate (which right now is almost nothing). You have to make very sure it is documented correctly.
Somebody correct me if I am wrong about this, I haven't researched it well.
Something to check with your accountant/tax preparer.
The prescribed rate is 1% currently, until the end of June, 2009.
So here is what I gather: The higher income earner can loan money to the lower income earner at 1% per year (the interest does have to actually be paid by the lower income earner to the higher earner, and this has to be regulated by a formal agreement). The lower income earner can take that money and invest it, and the investment income will be taxed in his hands, presumably at a much lower rate than it would be for the higher income earner. This can offer interesting tax saving possibilities for couples with significant income disparities.
From what I gather, the loan can be maintained forever at 1%, even if the interest rates rise. Seems like a fabulous deal.
You can have your spouse purchase your dividend paying stocks at the fair market value. You must be able to show the spouse paid for the shares with their own funds.
Alternatively, you can led your spouse the funds to buy the stocks. The loan must be at least the prescribed rate by the CRA and the interest must be paid annually within 30 days after the end of the year. Again you must be able to show the interest was paid with the spouses own funds. You cannot give the spouse the funds the pay the interest.
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My wife has no income so why can't I just give the required funds to buy investments ?
Why is it necessary to go through a loan ?
After all I paid taxes on the income so it is up to me what I do with it.
Zen,
There are attribution rules in Canada to prevent exactly what you are trying to do (http://www.investopedia.com/terms/a/...utionrules.asp). Basically, you are trying to use your money to invest under your wifes name to reduce taxation on the investments. If you simply give money to your wife to invest, any investment income will be taxed in your hands, not hers (http://www.professionalreferrals.ca/...ome-splitting/)
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disclaimer: I'm not a tax professional and please consider this as FYI only. i am personally implementing this strategy.
DrStan has the correct solution. You can in fact loan your spouse funds to invest so any income earned is taxed in her hands. With the new CRA prescribed rate at 1% this solution is very effective.
Remember that there "must" be a formal loan document, the spouse must physically pay the interest on the loan by January 30, so the lender will earn 1% interest (taxable) on the loan, the borrower can deduct the interest paid to the spouse an expense. If you forget to pay the interest or can't prove that you did CRA will deem the transaction a sham and the whole thing will be declared void. This link is a bit dated with respect to the prescribed rate but explains the strategy very well.
http://www.fiscalagents.com/newslett...salloans.shtml
Some caveats, remember that any securities that you sell/loan to your wife have some tax consequences. For instance if you have a bank share and you wish to loan this to your wife, CRA deems your loan as a disposition of shares and any gain is taxable in your hands. Your spouse's ACB is the price on the day you sold/loaned it to her. If the deemed disposition is at a loss it is deemed a superficial loss and is not deductible by you. This loss is added to your spouse's ACB.
Hope this helps. Good luck.
If the spouses open a joint brokerage account, with the securities purchased using a line of credit, is the allocation of dividends and capital gains 50/50? Or can it be another allocation (eg, 75/25)? I am assuming that allocation must then remain fixed?
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