Home Information Take advantage of the spousal-loan strategy

Take advantage of the spousal-loan strategy

by Sylvain Lapointe
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The spousal-loan strategy involves splitting income between a spouse with a high marginal tax rate and a spouse with a lower income. As a result of our progressive tax system, this strategy results in a lower family tax bill.

However, the attribution rules contained in income tax law prevent certain income-splitting strategies by reallocating the income generated by the transfer to the taxpayer responsible for the transfer.

There is, however, a way around this rule. If a loan, rather than a donation, is made, the income is not reallocated. The loan must, however, be made at the minimum prescribed rate, and the interest on the loan must be payable by January 30 of the following year.

An article by Jamie Golombek in Investment Executive[1] reminded me of an important rule relating to this strategy that is of significant relevance at the moment. The prescribed rate is calculated by the government and is reviewed on a quarterly basis. This rate is currently only 1% and will double to 2% on July 1st.

What makes the strategy particularly appealing is the fact that if the loan is taken out prior to the July 1st increase, the 1% rate is locked in for the life of the loan and is not affected by any future rate increases.

This strategy is of particular interest to couples where one partner earns a high personal income while the other is not in the job market. Given the state of the markets since the beginning of the year and the presence of some interesting stock valuations, the spousal-loan strategy may be a worthwhile move.

It’s also possible to deploy this strategy as part of a family trust.

Feel free to ask for advice, but hurry as there isn’t much time left!



[1]“Help your client split income with a prescribed rate loan” (in Investment Executive) by Jamie Golombek, May 18, 2022

The information contained in this article were prepared by Sylvain Lapointe, an Investment Advisor attached to: PEAK Securities Inc.; they were obtained from sources we believe to be reliable but are not certified and may be incomplete. The author is not responsible for readers’ financial decisions following this reading. The views expressed here do not necessarily reflect PEAK Securities Inc. PEAK Securities Inc. is a member of the Canadian Investor Protection Fund.

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