# Tax rate on rental income if property is owned by low versus high rate tax payer



## mungbeans (Mar 14, 2012)

Hi

My wife and I are thinking of buying an apartment which we would be renting out.

I'm a high rate tax payer while my wife doesn't work. If we bought the property in both our names I'm assuming we'd have to declare the rental income and I'd be taxed on it at my high rate.
However if the property was just bought in her name then is that a way of circumventing a high tax rate on the rental income?

TIA


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## andrewf (Mar 1, 2010)

You have to be careful. The money to finance the property has to be your wife's (ie, downpayment). You can lend the money to her, at the prescribed rate. It's worth getting help from your accountant to make sure you've structured it properly.


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## jamesbe (May 8, 2010)

I was in the same situation, we just put it 50/50 in our names and we pay the high tax on 50% and no tax on the other 50%.

She did put in some money though


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## andrewf (Mar 1, 2010)

If there is a big difference in income, you have to be careful even splitting it 50/50. The safest way to do it would be for OP to loan the downpayment to Mrs. OP at the current prescribed rate of 1%. The loan interest is income for Mr OP and a deductible as an investment loan for Mrs. OP. Then Mrs. OP buys the rental property in her name and claims 100% of the income/expenses for the property.


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## mungbeans (Mar 14, 2012)

Thanks for the replies. 

We wouldn't be using a mortgage it would be a cash purchase, with money from a joint bank account. Therefore does that count as being her's?


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## Spudd (Oct 11, 2011)

The joint bank account money is attributed back to the individuals according to who earned the money that got put in there. So, if you earned all that money, then it would count as being yours.


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## andrewf (Mar 1, 2010)

In that case, my comment still applies, except the downpayment is 100% of purchase price. The prescribed rate is quite low at the moment, so for a $300k house, your income would be $3k, and the rest of the net income would be attributable to your wife.


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## jamesbe (May 8, 2010)

Who says someone with no income doesn't have savings from before? Unless they NEVER had income.

My wife wasn't working for 5 years when we bought our Condo. She had some savings and used that as the downpayment.

If she never worked that could be an issue. I opened a new account when we bought ours and we both moved money into it.


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## Just Confused (Apr 6, 2013)

You could start a corporation that would own the apartment. Getting incorporated can be done online in less that 48 hours and costs well under $1000. OP and Mrs OP can be joint owners of the corporation. Each year Mrs. OP could invoice the corporation for property management services and take most (but not all) of the income from the corporation into her low tax rate personal income. Mr. OP need never receive any significant income from the corporation because it makes very little profit each year.

You also get the benefit of some limited liability if a lawsuit arises against the rental property. Generally speaking, Mr & Mrs. OP and their assets are safe from that suit.


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